Sse Frankfurt Finance Cluster

Frankfurt Financial Cluster
AGENDA
•  Environmental Analysis
•  Macro Level
•  Micro Level
•  Diamond Model
Macro Level Demographics Economy Educa;on
•  Cluster Analysis
•  Cluster Mapping Environmental Analysis
•  Main Players Micro Level Financial Sector Cluster Policies
•  Suppor;ng Players
•  7 Gap Model Main Players Suppor;ng Players
•  Diamond Model
•  Cluster Comparison Cluster Analysis Interac;ons 7 Gap Model
•  Cluster Descrip;on London & Paris
•  Quan;tav;ve Analysis Diamond Model
•  Qualita;ve Analysis
•  Dynamic Scenario Analysis Strategy
•  Firm Analysis Firm Analysis SWOT Analysis
•  Deutsche Bank Railway Model
•  Railway model
•  Recommenda;ons Cluster Comparison And Recommenda7ons
07/03/17 Stockholm School of Economics 2

AGENDA

1. Environmental Analysis
Analysis of the aQrac;vity of the German economy, poli;cal and Demographics Economy Educa;on
legal environment. This includes basic factors of compe;;veness,
educa;on and innova;on. The micro level is evaluated by Financial Sector Cluster Policies
assesing the financial industry and German cluster policies and
ini;a;ves. Main Players Suppor;ng Players
Interac;ons 7 Gap Model
2. Cluster Analysis Diamond Model
3. Firm Analysis Strategy

SWOT Analysis
4. Recommenda;ons Railway Model


Environmental Analysis: Overall Informa=on
Germany has the largest popula1on in Europe, low unemployment and is
considered a financially stable state. It takes an influen1al posi1on in the EU.
Facts…1,2 Taxes & other Revenues
Poli;cs 2,4
Very central loca;on in Europe, combined with a connec;on to Public debt Poli;cal system: Federal parliamentary republic
the sea. Ra;ng: AAA
Partly included in the Blue Banana area. Budget surplus Largest party: CDU/CSU
Most populous country aWer Russia. Angela Merkel elected most powerful woman in the world 6 ;mes in a
-‐20.00% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00%
Member of NATO, EU , EMU, G6 row.
16 Bundesländer, with a high degree of independence Germany is considered the “Reluctant leader” of the EU
France Germany
11 metropolitan regions Populism and na;onalism are on the rise, also with the refugee crisis.
Frankfurt Rhine Main …and figures2 60.00%

(% of na;onal) 50.00%
Size: 357,170 sq. km (63rd)
40.00%
8 Popula;on : 81,413,145 (19th)
Popula;on growth: -‐0,16% (211th) 30.00%
6 Median age: 46,8 (3rd) 20.00%
Urban popula;on: 75,3%
10.00%
4 Labor force : 45 million (15th)
Agriculture: 1,6% 0.00%
2 Industry: 24.6% Working popula;on Unemployement rate People below the
Services: 73.8% poverty line
0 Average wage: 3695 €/month
Germany France
Popula;on GDP Area Gini index: 27 (133rd) ?
Germany benefited from it’s very central loca;on to become a trading spot in Europe since the middle ages. Nowadays they can count on the largest popula;on in Western Europe as well
as one of the largest labor forces in the world. The geopoli;cal situa;on is complicated currently, with Germany assuming the role of leader of the EU, although reluctantly, and with some
complaint from other EU members, mainly those who had to suffer from the austerity measures imposed by the EU under the lead of Germany aWer the financial crisis.

Environmental Analysis: Economy
The German economy is one of the most compe11ve worldwide. It strives in
infrastructure, macroeconomic environment, health and technological readiness.
General informa;on 1 Compe;;veness 2,5,6 Global compe;;vity index 2016(3)
GDP: $3.841 billion (6th) Infrastructures ranking: 4,23 (1st) 1st pillar:
Growth: +1,5% (149th) GDP per capita Ins;tu;ons
Global compe;;vity index: 5,57 (5th)
Agriculture: 0.6%, 12th pillar: 7 2nd pillar:
55000 Business confidence index: 110,40 6
Industry: 30.4% Innnova;on Infrastructure
Labor cost index: 110,47 5
Services: 69.1%. 45000 Produc;vity index: 103,9 11th pillar: 4 3rd pillar: Macr.
Ease of doing business index: 17 Business 3 Environment
Foreign trade and investments: 35000 Unemployment: 4,6% (47th) 2
Foreign trade share: 7,2% (3rd) 1
25000 Youth unemployment: 7,7% (112th) 10th pillar: Market 4th pillar: Health
Exports: $1.309 billion (4th) 0
GDP per hour: 59,5 (9th) size and Educa;on
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Imports: $1.017 billion (4th) Minimum wage: 8,5€/h
FDI in Germany: $1.017 billion (5th) Unions members: 6,1 million 9th pillar: 5th pillar: Higher
FDI from Germany: $1.972 billion (3rd) Germany France OECD Corporate tax rate: 29,7% Technological educa;on
Social security rate for companies: 19,33% 8th pillar: Financial 6th pillar: Goods
market market efficiency
7th pillar: Labor
50 1.6
Labor compensa;on growth rate(4) market efficiency
40 1.4
5
30 1.2
4
20 1 Germany has the strongest economy in Europe, with a
3
10
0.8 much high GDP per capita. The countries strength is based
2
1 0.6 on a strong industrial sector, the highest ranked
0
0 Corporate tax rate Social security rate for 0.4 infrastructures worldwide, a dominant posi;on when
2007 2008 2009 2010 2011 2012 companies 0.2 looking at foreign trade, and outstanding compe;;ve
0 performances, scoring high in all of the 12 pillars. The labor
Germany France Germany France
Labour produc;vity growth market is also quite flexible when compared to other
Western European economies.

Environmental Analysis: Educa=on/Innova=on
Educa1on is above average, however Germany takes no leading posi1on in interna1onal
comparison. Germany performs very well in KPIs represen1ng innova1veness.
Educa;on1,2,3,4 Innova;on 5,6,7,8,9,10,11
Educa;on spending: 4.9% of GDP (74th) R&D spending: 2,9% of GDP (8th) Ranked 1st for innova;ve enterprises in EU (66,9%) 2010-‐2012
Primary educa;on enrollment rate : 103,3% Patent applica;ons: 24,8 K (2nd) Ranked 10th in innova;veness WIPO 2016
Secondary educa;on enrollment rate: 102,4% Startups funding: $2924million Ranked 3rd by Bloomberg in overall innova;veness 2015
PISA 2012 rankings: 16th/19th/11th
Improvement: 1,4 pts/year Share of worldwide patent applica;ons 3.5
2.924
3
8 2.482
Others 2.5 2.3 2.2
7 USA
UK 18%
6 27%
China 3% 2
5
4% 1.302
4 1.5
1.0781
3 Korea 1
2 4%
Switzerland Germany 0.5
1
4% 16%
0 0
Number of top 25 finance Number of top 25 management NL Japan R&D spendings (%of GDP) Start up funndings (USD Patent applica;ons (10k
universi;es universi;es 4% 13% billion) per year)
France
Germany France 7% Germany France
Even though Germany may invest less than other countries in educa;on, which is also shown in the lower number of top ranked universi;es worldwide, the results are impressive, with an
educated popula;on scoring well above average. Combining this with a strong governmental support for R&D leads to high rankings in innova;on, and the second highest number of
patent applica;ons worldwide. This strong innova;ve spirit is a key success factor for the economy and clusters specifically, for example in the Fintech sector.

Environmental Analysis: Financial Sector
Large number of banks and 1,3 million people employed in the financial sector. The
financial market is stable and the German culture is rather debt-‐averse.
Facts… 1 Household debt to GDP (%)5 Legal Frameworks6,7,8
Germany has had a strong banking culture for a long ;me, with the first 110 Regulators:
interna;onal banks already in the 15th century. 100 Financial Stability Board (FSB)
Their universal banking system is divided in 3 pillars: Private, public and European Central Bank (ECB)
coopera;ve banks. 90 European Banking Authority’s (EBA)
The country has a very large number of banks (25% of EU banks are in 80 Associa;on of German Banks (BdB)
Germany). This decentraliza;on led to a strong self regula;on tradi;on, 2007 2008 2009 2010 2011 2012 2013 2014 Federal Financial Supervisory Authority (BaFin)
for example with Voluntary deposit protec;on schemes. Federal Agency for Financial Market Stabiliza;on (FMSA)
Germany France
Interna7onal Regula7ons:
…and figures1,2,3,4 Single Supervisory Mechanism of the European Central Bank (SSM
Regula;on)
Confidence index: 101
Household savings rate (%) (5) Capital Requirements Regula;on (CRR)
Infla;on rate: 0,1% 18 Market Abuse Regula;on (MAR)
Bank lending rate: 2,54% Single Resolu;on Mechanism Regula;on (SRM Regula;on)
Savings rate: 16,7% 16
Household income: 14 Na7onal Regula7ons:
Household net worth: 195% of disposable income German Banking Act (KWG)
Private debt to GDP ra;on: 149,75% 12
Capital Investment Code (KAGB)
2007 2008 2009 2010 2011 2012 2013 2014
Loans to private sector: 1341.05 billion € Solvability Regula;on (SolvVO)
Foreign exchange reserves: $182bn Germany France Liquidity Regula;on (LiqV)
Financial sector: 1,27 million employees Regula;on on Large Scale Exposures and Millionenkredite (GroMiKV)
The Financial sector inn Germany has a strong history, and benefits therefore from a strong confidence. However, this belief was a bit eroded aWer the government had to bail out bank
during the financial crisis aWer those same banks had made billions in profits. However, confidence is s;ll quite high, with stable saving rates, and a low infla;on rate. When it comes to
regula;ons, most are following the interna;onal regula;ons set by he EU, and currently a process of harmoniza;on between na;onal regula;ons is taking place.

Environmental Analysis: Cluster Policies
Cluster programs connect clusters and support them with a wide range of services.
Venture capital availability is oJen insufficient.
General informa;on1 Main Cluster Sectors1 SME Average cluster composi;on2 Government implica;on 4
0 20 40 60 80 100 Non-‐SME
Germany is the main precursor for cluster Go cluster: Exzellent vernetzt!
policy and cluster ini;a;ves in Europe, with Enviromental Technologies R&D ins;tu;ons This program unites 100 innova;on clusters in
some policies that started already in the Energy Technologies Germany and supports them by providing
1990’s. Those ini;a;ves have made Universi;es services such as coaching seminars. 9 of those
considerable progress over the past years, clusters have been audited and awarded with
Services Other educa;on
and helped German cluster management to providers the Gold Label of the ECEI. A total of 13000
Produc;on Technologies
score over average in 12 of the 16 European Consultants actors are involved, including small and
Clusters Excellence Ini;a;ve (ECEI) Health Industry
medium business as well as university chairs
indicators. Government
agencies
and ins;tutes.

Number of clusters: 454 Rela;ve importance of future
ECEI Gold level clusters: 11
The Leading-‐Edge Cluster Compe77on:
challenges3 The program was launched by the Federal
Organiza;on of cluster governance2
Strengths: Ministry of Educa;on and Research (BMBF) in
0% 10% 20% 30% 40% 50% 60% 70%
Clear strategy, sufficient resources, both 2007. The government provided up to 600 mil
Sustainable financing France € to fund a total of over 1300 projects in 15
financial and human capital, stable
management with clear tasks. Collabora;ve Technology Germany leading clusters. 2000 partners such as
Interna;onaliza;on universi;es, businesses and research
Weaknesses: Increasing the coopera;on 0% 20% 40% 60% 80% 100% ins;tu;ons worked together, which gave rise
Lack of interna;onal recogni;on and Acquisiton of R&D funds to 900 innova;ons, 300 patents, 40 startups,
Weak Middle Strong
insufficient focus on organiza;onal learning. and countless disserta;ons.
Clusters in Germany can count on a strong economic environment, support from the government when it comes to funding and “bridge builders”, and an educated and innova;ve labor
force that helped the country establish it’s dominance in industry oriented sectors. Clusters are composed manly of smaller companies, as opposed to France for example. This can
some;mes lead to a lack of governance, coordina;on and coopera;on. But overall the main issue for clusters is s;ll access to sustainable financing.

Environmental Analysis: Diamond Model
Germany offers a highly developed business environment. Economy and state are
considered very stable. However, doing business is oJen hampered by bureaucracy.
Strategy, Structure and Rivalry
++ Large, growing and highly compe;;ve economy

+ Net cash inflow due to export orienta;on
+ High economic stability
+ Strong SME sector and evolving start-‐up scene

-‐-‐ High levels of bureaucracy
-‐ Formal culture and mindset (liQle ‘out of the box’ thinking)
Factor Conditions Demand Conditions
++ Highly developed infrastructure + Strong banking culture and confidence in the
+ Educated workforce financial sector, large domes;c market
+ High household saving rate + Low interest rate leads to high investments
+ Large number of banks + Stable long-‐term growth enhances demand for
long-‐term investments
-‐ Low prevalence of venture capital
-‐ New minimum wage reduces flexibility of labor
market
Government
Related and Supporting Industries
+ Cluster ini;a;ves, both at na;onal level and
+ Strong industrial sector requiring heavy investments regional level
+ Strong and fast growing related clusters (Fintech) + Readiness to bail out financial ins;tu;ons in case
+ Germany as focus for many interna;onal service providers (e.g. consultancies) of crises
-‐ Lack of efficient technology transfer and coopera;on + Influence on EU policies and regula;ons
-‐ Rela;vely high corporate tax

AGENDA

Demographics Economy Educa;on
Cluster Analysis
2.
Introduc;on and evalua;on of the main actors, suppor;ng Financial Sector Cluster Policies
actors and related clusters. Formal as well as informal
interac;on within the main players are explained and the 7 Gap Main Players Suppor;ng Players
Model is used to assess rela;onships to other stakeholders. Interac;ons 7 Gap Model
The Diamond Model will summarize cluster compe;;veness. Diamond Model
3. Firm Analysis Strategy

SWOT Analysis
4. Recommenda;ons Railway Model


Frankfurt Finance Cluster Map
Regula;ng Ins;tu;ons Related Clusters

Core Cluster Players Monetary Supply
Renminbi Data and
Commerzbank European Systemic Risk ECB Client Input Fintech Cluster
Cluster Informa;on Hub
Board
Deutsche Bank
European Insurance and
Hessische Landesbank
Occupa;onal Pensions Core Cluster Suppor;ng Clusters
ING DIBA Authority
Commercial Investment Market Bain & Company BCG
Goldman Sachs Federal Financial Banking Banking Place Consul;ng
McKinsey Accenture
Morgan Stanley Supervisory Authority
Universal Bank PWC KPMG
JP Morgan Federal Agency for
Audi;ng
Financial Market EY DeloiQe
Metzler Investment Bank
Stabilisa;on Commercial
DZ Bank Bank Deutsche Börse Baker & McKenzie Freshfields
Insurance (Frankfurt Stock Law Firms
Frankfurter Volksbank Exchange) Taylor Wessing Clifford & Chance
Regional State
Fond
BNP Paribas Bank Standard & Poor’s Moody’s
Nomura Group Mutual Savings Ra;ng Agencies
Private Equity Fitch DBRS
Bank
Helve;a Frankfurt School of
Monetary Value Goethe University
R+V Versicherungen Service Value Financial ins;tu;ons
Educa;on Finance
Banks provide services (cash mul;ply the EBS Mannheim University

[…] Customers
storage, transac;on services customer’s money on Research WHU
StroQhoff
Interna;onal
etc.) Private Corporate Public the market

History of the Financial Cluster
Frankfurt became the European capital of banking high-rises after the
Second World War and got its nickname “MAINhaRen“
The Hollywood of Finance Frankfurt’s Ambi;ons
With the increased digitaliza;on and globaliza;on, it could be expected that finance would become AWer the Brexit, and London’s loss of aQrac;veness, it could be the ;me for a new Hollywood to
a decentralized industry, a web of transac;ons spanning all across the world. But what we see emerge, and to become the new leading financial center. And one of those poten;al candidates
instead is that financial clusters are as strong as ever. Why would a bank move to London, where is the Frankfurt financial cluster. The city has already been economically relevant since the
prices are exorbitant and public transporta;on overcrowded, to then work almost exclusively with middle ages, but it is aWer WWII, when destroyed Frankfurt was rebuilt, that the financial cluster
digital data? As for Hollywood, which became a local cluster in a global market, the reason lies started to emerge. Frankfurt, located at the corner of American, Bri;sh and French occupa;on
within the aQrac;on factors: if you want to be taken seriously as an actor, Hollywood is the place to zones, became the headquarters of the united economic area bank of German countries, which
go, and if you want to be taken seriously as a bank, London is the place to go. But is it s;ll the case? later became the Deutsche Bundesbank. This was the star;ng point of the financial cluster.
Frankfurt‘s central The prin;ng press was inveted Deutsche Bank European
Deutsche Bank of German
loca;on made it a close to Frankfurt and brought moved its HQ central Bank
Börse was countries was
mercan;le hot the book far and related banking from Berlin to was founded in
founded. founded.
spot. business to the city. Frankfurt Frankfurt
Middle Ages 1440 1585 1948 1957 1998 Today Tomorrow?

Cluster Analysis -‐ Banks
The two largest banks in the cluster are currently struggling and will let go large
numbers of employees.
Commercial Banking Investment Banking

Although many financial
services can be received
without immediate proximity,
Unlike the U.S., Germany does not require a legal separa;on of investment banks and commercial banks. Commercial banking describes financial consul;ng (as done in
the deposit and credit business, while investment banking comprises trading and M&A ac;vi;es. investment banking) and
tailored corporate products
Largest Players Employees (FFM) The top 10 investment 4. Morgan Stanley favor geographical proximity to
Commerzbank 13’300 banks all have Frankfurt 5. Ci;group large companies. The map of
Deutsche Bank 9’700 6. Deutsche Bank German DAX 30 corpora;ons
offices shows that the Frankfurt area is
DZ Bank Gruppe 5’900 7. Credit Suisse
1. JP Morgan perfectly located to serve as
Helaba Konzern 5’000 8. Barclays Capital
2. Goldman Sachs many DAX headquarters as
KfW 3’350 9. UBS
3. Bank of America Merill Lynch 10. Wells Fargo possible.
Frankfurt’s central loca;on and
Current State excellent infrastructural
Compared to other finance clusters, Frankfurt got away with connec;on also makes travel to
other, more distant, economic
rela;vely liQle harm in the financial crisis 2008. Currently
however, the two largest players are staggering. Commerzbank
hotspots (e.g. Munich in 3:10h
announced to let 7’300 employees go globally over the next -‐18,8% by train) easy.

four years and Deutsche Bank is in an unstable state aWer a 7,2 (‘11-‐’16)
billion dollar fine by the US jus;ce department.1 Deutsche
Bank will also decrease the number of employees by about
4’000 worldwide. 200
This rather nega;ve state of current members of the cluster is German M&A Market overtakes French
counteracted by the posi;ve outlook resul;ng from Brexit. 100 Germany
About 20% of London’s financial industry is es;mated to move -‐35,5% France
to Europe. As a BCG study reveals, Frankfurt is the most 0
(‘11-‐’16) 2014 2015 2016 2017 2018 2019 2020
popular contester to benefit from this development. 2

Cluster Analysis – Regula=on and S.E.
Federal and European ins1tu1ons are placed in Frankfurt‘s finance district. The Deutsche
Börse is one of the most important anchors and has a very uncertain future.
European Central Bank European Systemic Risk

European Insurance and
Occupa;onal Pensions
Deutsche Börse
Board1
Authority2
Objec7ves Objec7ves
The mission of the ECB is price stability in the Provide an efficient, transparent and market place:
„The ESRB is responsible for the „EIOPA's core responsibili;es are
euro zone. In the recent financial crisis the ECB’s Provide banks and other investors with real ;me informa;on
macropruden;al oversight of the to support the stability of the
currency poli;c showed that economic Cooperate with supervising agencies to ensure legal compliance
EU financial system and the financial system, transparency of
development and growth are secondary goals. preven;on and mi;ga;on of markets and financial products as Current State
Addi;onally, it has a supervising func;on over systemic risk. The ESRB monitors well as the protec;on of Deutsche Börse is the most important stock exchange in con;nental
banks that are considered crucial for the well-‐ and assesses systemic risks and, policyholders, pension scheme Europe3. The value of the SE itself is significantly higher than that of its
being of the European financial system. where appropriate, issues members and beneficiaries“ compe;tors from London and Amsterdam/Paris. This is also due to its
warnings and
recommenda;ons.“ technologic leadership role.
Interest Rates Merger With London Stock Exchange

Federal Agency for Deutsche Börse and LSE decided to merge – originally with planned
The ECB provides banks with the opportunity to Federal Financial
lend money (long term) and lend/deposit money
Financial Market headquarters in London. While the merger is currently in an evalua;on
Supervisory Authority3 process from European authori;es, Brexit started a discussion to locate the
over night to a certain interest rate. These Stabilisa;on4
new, huge stock exchange in Frankfurt.4 This would increase Frankfurt’s
interest rates are used to control the market
BaFin operates in the public Since its founda;on in 2008, in chance to replace London as the most important finance hub in Europe.
interest rates, which the banks pass through to
their customers. interest. Its primary objec;ve is the midst of the global financial
to ensure the proper func;oning, crisis, the FMSA manages not Value of listed Companies5
stability and integrity of the only numerous shareholdings 5000
with financial ins;tu;ons on 2005 2015
German financial system. Bank
customers, insurance behalf of the Federal
policyholders and investors Government, but it is also
ought to be able to trust the responsible for na;onally
administering the Single 0
financial system.
Resolu;on Fund’s bank levy. Deutsche Börse Euronext London Stock Exchange

Interac=on within the Cluster
The actors are formally connected and in frequent contact. Informal interac1on (e.g. in
restaurants or bars) provokes an area of conflict between innova1on and disclosure.
Formal Interac7on Informal Interac7on
Between Banks and

Interest rate for long term Between Banks
Buys market Authori;es
credits to banks strongly
media;on and Advantages / Chances
Banks influence industry Advantages / Chances
informa;on
dynamics Authori;es can get insights Innova;ve thoughts and
services in the reali;es in the ideas can be shared. As the
financial market and align banks oWen are financially
monetary poli;cs interconnected, ac;vi;es
Provides efficient, Supervision and accordingly. Bank employees can be aligned (e.g.
transparent Control get the chance to ar;culate automated informa;on
hopes and fears. exchange systems)
marketplace
Disadvantages / Threats Disadvantages / Threats
Supervision and ECB
Deutsche Börse
Threat of informa;on Threat of insider-‐trading,
Control disclosure about current disclosure of corporate
inves;ga;ons or upcoming secrets. Especially barriers
regula;ons. Personal within organiza;ons are
Coopera;on to rela;onships can influence easily overstepped (e.g.
legal judgement. between investment
Supervision and Control ensure fair and banking and M&A)
stable markets
Supervising
Authori;es
Innova;on vs. Disclosure

Suppor=ng Players – Service Providers
More than 550 banks and insurance companies as well as about 2,000 financial
service providers from Germany and abroad seRled in Frankfurt.
Consultants Law Firms
Currently there are more than number of consul;ng companies Frankfurt is the home to around The shore of the Main locates
Consultants 70 consul;ng firms located in in Rhein-‐Main has increased 44 Law firms. most of the major interna;onal Law Firms
the city of Frankfurt. almost by 5 ;mes since 1980. Frankfurt has the highest legal law firms, such as Clifford
The consul;ng industry has a density in Germany with 97 Chance, Linklaters, Freshfields
regional concentra;on with inhabitants per lawyer (as of Bruckhaus Deringer, Baker &
approx. 169,000 employees in 2005). McKenzie, etc.
almost
17,000 companies and sales of
almost 20 bill. € in the Rhine-‐
Main economic region. The
Audi7ng Ra7ng Agencies

All Big Four largest interna;onal The three major interna;onal Those three agencies control
Auditors accountancies and professional credit ra;ng agencies -‐ Standard approximately 95% of the Ra;ng Agencies
services are present in & Poor’s, Moody’s and Fitch ra;ngs business market.
Frankfurt. Ra;ngs -‐ have their
German headquarters
PWC has their German HQ set
in Frankfurt.
up in Frankfurt;
KPMG has even their European Ra;ng agencies are usually
HQ here. located nearby the na;onal
stock exchange.

Suppor=ng Players -‐ Educa=on/Infrastructure
Frankfurt’s loca1on and infrastructure supports the clustering process and
the city stands for excellent research and prac1cal experience.
Educa7onal Ins7tu7ons Infrastructure
Frankfurt has a network of Featuring the largest airport in con;nental Germany), which also allows maximum mobility
Universi;es excellent universi;es focused on •  Presence ofInterna;onal Europe and the eighth-‐largest one in the world for the city’s overland transport network.
finance based in the area: schools as well as the second-‐largest European train Frankfurt has also a cargho ship network. It is
•  41 research ins;tu;ons: •  The Financial Times Ranking sta;on, Frankfurt is a central transporta;on connected to the Main and close to the Rhein,
hub for Europe. thus all con;nental crgo ships can reach its
universi;es, business of Finance Masters shows
harbour.
schools, universi;es of that the only German Frankfurt’s main railway sta;on is integrated The outstanding transport infrastructure is very
applied sciences, etc. program is at the Frankfurt into the European high-‐speed train network, important for establishing interna;onal
•  160,000 students (22,000 School of Finance (20th). which means it can provide fast connec;ons to business contacts and developing new markets
interna;onal students) France and UK perform major German and European ci;es. abroad but also allowing foreign companies to
significantly beQer. Addi;onally, Frankfurt is situated near the enter the domes;c market.
motorway intersec;ons for north-‐south and
east-‐west connec;ons and has an extensive
road network as well as a strong regional
Research Ins7tu7ons railway network (RMV, the second biggest in
Metropole Region Rhein-‐Main

Research Frankfurt is home to more than Management and Regula;on
100 research ins;tu;ons (inside (FIRM), and the House of
Area: 14.755 km²
Popula;on: 5,58 Mio.
and outside of finance) due to Finance (European competence Employees(erwerbstä;ge): 3,0 Mio.
its intensive educa;onal center for BIP / Capita: 72.500 ‎€
network such as S.A.F.E., Finance research (170 Companies: 407.000

European Supervisor Educa;on academics conduct research)). Frankfurt am Main

Research Institutes:
-  Fias Frankfurt Institute for Advanced Ini;a;ve (ESE), Area: 248 km²
Studies
Popula;on: 716.277
- 
- 
Forschungsanstalt Geisenheim
Fraunhofer Institutes for Frankfurt Ins;tute for Risk
-  Gesellschaft für Schwerionenforschung
(GSI)
Employees(erwerbstä;ge): 651.100
- 
- 
Institut für Mikrotechnik GmbH (IMB)
Max-Planck-Institutes (MPI)
BIP / Capita: 84.400 ‎€
- 
- 
Paul-Ehrlich-Institut
Senckenberg Research Institute

Suppor=ng Players – Networks and Fairs
Frankfurt Messe as well as the regional hubs and clusters bring poten1al clients and business to the
city and its banking sector nourishing further growth of the financial cluster.
Trade Fairs & Events Related Clusters & Hubs

Frankfurt has been known for its •  Other Clusters in Frankfurt:
trade fair and market place for •  Automa;on
more than 800 years. In 1907 the •  Automo;ve
building of Frankfurt Messe was •  Chemicals & Pharmaceu;cs
•  Consul;ng
constructed and since then the For Frankfurt’s yearly Finance •  Fin Tech
city is famous for its Messe which Summit , CISO, many interna;onal
•  Health
brings many visitors, customers regulatory experts meet and •  IT & Data Technology

and business to the Rhein-‐Main discuss current topics related to •  Crea;ve Industries

area. banking. •  Logis;cs and Transporta;on

Aerospace

•  Materials Engineering

•  Environmental Tech & Energy

Socie7es & Associa7ons
Due to Frankfurt’s special digital fibre op;c network and its Hub and also the second biggest
loca;on and infrastructure many geographic loca;on causing 80 % Startup-‐City aWer Berlin.
Frankfurt is the home to different companies as well as of German internet traffic to pass
various finance associa;ons, en;re industries seQled around through the city.
which are oWen closely Money and Macro Associa;on, the ci;es causing more local hubs
coopera;ng with the exis;ng the WirtschaWswissenschaWliche and clusters to arise. These new Frankfurt is the leading Renminbi
university and research network GesellschaW and the EABH (The Clusters bring new business as Hub in the Eurozone. The swap-‐
or even developing out of it. European Associa;on for Banking well as partnerships & Networks agreement of 350 billion
Some of the most known ones and Financial History e.V.) to the financialsector. Renminbi is the third largest
are the Goethe Finance The latest for example places worldwide aWer Hong Kong and
Frankfurt is an important internet Korea.
Associa;on as well as Goethe current challenges of the financial
and data hub due to its modern Frankfurt is Germany‘s Fin Tech
sector into a historical context.

The 7 + 1 Gap Model
Most gaps are quite small and communica1on within the stakeholders is frequent. An eighth gap,
towards the popula1on, has to be accounted for as the rela1onship calls for improvement.
Firm to Global Markets Firm to Capital Firm to Educa7on
•  Finance industry highly connected with very liQle •  Limited applicability of this gap •  High aQrac;veness of the finance cluster for
barriers between markets •  Close ;es to ECB as the crucial capital provider for European banks students in the area and tailor-‐made programs to
•  Interna;onal players with offices in Frankfurt fit the cluster’s needs
represent the link to global markets
Bridge Builders Firm to Government

•  Frankfurt Main Finance e.V. •  Strong lobbying influence on EU-‐level (EUR 120
•  Goethe Finance Associa;on, European Associa;on for Banking million lobbying expenses of the financial
Firm to Cluster and Financial History e.V etc. industry)1
Bridge builders connect firms within each other (especially Frankfurt Main •  15 out of 17 EU advisory groups have domina;ng
•  Connec;on to many industries as nature of the ;es to the financial industry1
demand Finance e.V.) and close the gap to research ins;tu;ons and educa;on.
However, none of these ins;tu;ons focus on the gap between finance •  Public supervising ins;tu;ons are central part of
•  LiQle, but growing coopera;on with FinTech
firms and start-‐ups or the gap to the local popula;on. the cluster
startups
•  High poli;cal importance due to the economic
importance of the finance industry’s well being
Firm to Research Firm to Firm

Firm to Popula7on
•  Involvement in university research •  Coopera;on between the players (e.g. Deutsche Bank offers
•  However liQle communica;on with innovators and investment opportuni;es of 14 other financial ins;tutes)2 •  High distance between the finance cluster and the
liQle applica;on of new ideas or perspec;ves on •  Within investment ac;vi;es, banks are oWen not in compe;;on average popula;on
the finance industry against each other but in compe;;on against the market, which •  Finance reputa;on worsened since the financial
benefits their willingness to communicate crisis 20083
•  Occupy Frankfurt protests

The Diamond Model
The Frankfurt Finance cluster is highly compe11ve. Yet, poten1al for improvement
can be found access to highly skilled workforce and the city’s lifestyle quali1es.
Strategy, Structure and Rivalry Frankfurt Finance Compe77veness

+ The market structure is very dense and many comparable players are ac;ve, The reasons of the financial industry for clustering are different to the
but rela;vely liQle compe;;on compared to tradi;onal industries, as investors reasons of most other industries. Global connectedness, the market as
primarily compete with the market main contrary of the investment business and ability to provide and
+-‐ Strategic orienta;on shiWing towards risk reduc;on and compliance receive services completely independent of loca;on make geographic
proximity unnecessary on first glance.
A study of the reasons of the financial industry for clustering in London
shows that the most important reasons are: 1
Factor Condi7ons Demand Condi7ons 1. Address to be perceived as credible
2. Access to skilled labor force
++ Low real estate price level, regarding private + Long term low interest rates strengthen credit 3. Proximity to market leading customers
housing as well as office rents demand and increase investment aQrac;veness
+ Interna;onal connec;vity and leading + Posi;ve outlook for M&A market 1. Frankfurt is considered the most credible loca;on for banking in
infrastructure + Proximity to many leading German corpora;ons
Germany. In interna;onal comparison it offers the advantage that office
+-‐ Solid local educa;on and research ins;tu;ons, but
space is rather affordable and – most important – available within the
not outstanding in interna;onal comparison
finance district. Other finance loca;ons in Europe lack availability in the
-‐ Frankfurt does not symbolize lifestyle like other
finance ci;es Government city center.
2. Although Frankfurt has many finance focused educa;on ins;tu;ons
++ Regula;ng ins;tu;ons locally within reach, quality and reputa;on of local universi;es does not match
Related and Suppor7ng Industries present and public monetary policy the environment in London or Paris. To aQract the most qualified people,
influences by finance environment the city and its “lifestyle” quali;es are important. Frankfurt’s reputa;on
+ Suppor;ng industries show stable growth -‐ LiQle focus of the German in these regards shows poten;al for improvement.
+-‐ Fintech cluster established but liQle venture capital government on the finance industry 3.Frankfurt also strives for proximity to customers, as it is close to many
availability of the 30 largest German companies.
-‐ Fight for talent also with suppor;ng industries
20
SWOT
The SWOT shows that Frankfurt is well equipped to take advantage of the opportuni1es in
the future. However, it is not ready to take on the threat of business model changes.
Strengths Weaknesses
•  Very compe;;ve cluster with high number of •  Key actors with uncertain future
players and most leading interna;onal actors and •  LiQle connec;on to FInTech cluster
regulatory ins;tu;on present •  Educa;onal ins;tu;ons not on a par with compe;ng
•  Great infrastructure, available office space and clusters
rela;vely low rent and real estate prices •  Frankfurt not considered as “lifestyle city”
•  Very stable and reliable environment and home •  Bureaucracy and lack of capital makes it difficult to
market start new businesses
Opportuni;es
•  The merger of Deutsche Börse with London Stock

Exchange (currently to be located in London) and the
•  Frankfurt is the most likely contester for London’s weakness of Deutsche Bank and Commerzbank are
•  AWer Brexit, approx. 20% of finance jobs from finance industry. Especially the availability of cheap variables that play an important role towards
London will relocate to other European clusters office space in best loca;on makes it more aQrac;ve Frankfurt’s aQrac;vity for London’s financial industry.
than Paris in this regard. •  As finance industry in London is known for a certain
lifestyle, Frankfurt’s lack of reputa;on to support such
a lifestyle can be a problem.
•  ”Payment Service Direc;ve 2” will force banks to •  The finance industry in general shows liQle
provide third party providers access to their an;cipa;on in ideas that could change their exis;ng
Threats
infrastructure and customer accounts by business model.

13.01.2018. •  With the new regula;ons in place, many new start-‐ups
•  FinTech start-‐up evolving and an;cipated to change -‐ will emerge and threaten banks with innova;ve
solu;ons. The lack of of inclusion can lead to
the way banking works, oWen leaving banks
unnecessary (e.g. PayPal, BitCoin) conven;onal banks being cut out.
•  Other finance clusters offer more fer;le environment
for new businesses

Financial Cluster London
London is the leading financial cluster in Europe. However its compe11veness
is currently tested due to the poli1cal situa1on in the UK and Europe.
London Financial Cluster Overview

London is one of the world's most important business, financial, and cultural centers with Suppor7ng Players
influence in poli;cs, educa;on, entertainment, media, fashion and the arts. London is home and head quarter to brokers, insurers, ra;ng agencies, and legal, consul;ng and
accoun;ng firms, as well as newspapers. The who is who of the financial industry supporters seQled in
London's largest industry remains finance, and its financial exports make it a large contributor London. Financial Times and The Economist are the most recognizable and professional newspapers
to the UK's balance of payments. Around 325,000 people were employed in financial services in providing informa;on, advices and solu;ons for financial business and both are located in London
London un;l mid-‐2007. London has over 480 overseas banks, more than any other city in the
world. London is home to banks, brokers, insurers and legal and accoun;ng firms. Research and Educa7on

A second, smaller financial district is developing at Canary Wharf to the east of the city which London has an excellent access to high financial educa;on and Research with worldwide known
includes the global headquarters of HSBC, Reuters, Barclays and the Magic Circle, which ins;tu;ons are Oxford University and the London School of Economics. and known Research Centers
includes Clifford Chance, the largest law firm in the world. London handled 31% of global such as the Financial Markets Group Research Centre, which is one of the leading centers in Europe
currency transac;ons in 2005 an average daily turnover of US$753 billion with more US dollars for academic research into financial markets.
traded in London than New York, and more euros traded than in every other city in Europe
combined. Infrastructure
As the capital of the UK and one of Europe’s biggest ci;es London has 4 airports, an intensive bus and
The UK's na7onal diamond represent underground system and supports its cargo trade system.
high compe;;veness. The vulnerability Public
of its diamond composi;on lies in less Business hospitality is highly developed in the City, the best hotels, restaurants offer variety of
developed infrastructure, fewer services for business partners and visitors. The city is a major tourist des;na;on for both
pressure on innova;on processes and in domes;c and overseas visitors, with annual expenditure by tourists of around £15 billion.
the high percentage of unqualified Businesses
work-‐force. However, the UK’s demand Central London is the headquarters of more than half of the UK's top 100 listed companies
is highly sophis;cated & its economy is (the FTSE 100) and more than 100 of Europe's 500 largest companies. Many firms also
overall open. provide trainings, higher educa;on learning, courses in finance and economics (e.g. CFA).
Surrounding Hubs & Clusters
London is also home to 4 other clusters: ICT, transporta;on services, prin;ng and
publishing and hospitality.

Financial Cluster Paris
Paris is Europes leading economic area. However, most interna1onal
suppor1ng players chose to have their HQs in the UK, Ireland or Germany.
Paris Financial Cluster Overview

With 12 million inhabitants, 944,000 businesses and 646,000 students, Ile de France accounts for 4.6% Suppor7ng players
of EU GDP, making it Europe’s leading economic area. Although most European HQ are rather located outside of France, Paris is s;ll home to the best
With over 800,000 direct jobs and 400,000 indirect jobs, France’s financial industry plays a central role known brokers, insurers, and legal, consul;ng and accoun;ng firms such as KPMG, McKinsey, BCG,
in the French economy. Finance accounts for over 4% of French GDP, and is the third largest sector by Ernst & Young, Bain & Company and Freshfields.
employment in Ile de France (Paris region). Four French banks are featured in Europe’s Research and educa7on
top 10, including two of the top three: BNP Paribas (2nd) and Crédit Agricole (3rd). Paris has a high number of interna;onal students & interna;onal top-‐ranked schools: HEC, ESSEC, and
ESCP Europe (2 French Business Schools in the European Top 10). The French educa;on system is very
Euronext is the leading stock exchange in the euro zone, accoun;ng for 40% of efficient and highly supported by public authori;es. Paris is also one of the European leaders in
the euro zone’s market capitaliza;on. As the European leader in equi;es and mathema;cs and business management due to its strong research and innova;ve capaci;es. The
corporate bonds, the Paris financial marketplace is also up to speed with new R&D expenditure in France (2.23% of GDP) is higher than the European average (2.02%).
ways of financing SMEs, including private equity and crowdfunding. In 2015, Infrastructure
Paris outpaced all other European ci;es for raising seed capital. Furthermore, France has the most important road network in Europe. Roissy Charles-‐de-‐Gaulle is the 2nd busiest
Euronext is the leading technology stock exchange in con;nental Europe. airport in Europe for cargo and passengers traffic and energy prices are aQrac;ve for corporates.
Public
Focusing on sustainable bonds, the Paris financial France is ranked 1st in Europe and 2nd in the world for life quality. It has a variety of ac;vi;es,
marketplace aQracts plenty of foreign investors. restaurant and diverse places for every-‐day-‐life to offer. The financial sector is na;onally accepted.
More than 500 interna;onal businesses, banks, Businesses
insurers and financial firms operate in the French Twenty-‐nine of the world’s 500 largest companies listed in the Fortune Global 500 have their
capital, where they employ nearly 126,000 people. headquarters in the Paris region, ranking it third in the world, aWer Beijing and Tokyo, and number
In all, €90 billion are currently invested by foreign one in Europe. Paris significant industrial sectors are luxury, aeronau;cs, media, and ICT.
investors in French financial assets. With more than Surrounding Hubs & Clusters
¥13 billion raised on Euronext Paris since 2012. The Paris region has set itself apart with its quest for new business. It is home to a total of c.a. 100
The French financial marketplace has built its business incubators, including Europe’s largest: Le Cargo (January 2017, Paris will be the largest
reputa;on as the market leader in green bonds. incubator in the world). Currently Paris is home to 9 different hubs & cluster such as the
France is the world’s top issuer of green bonds, “Transporta;on & Connec;veness” cluster and the hub for the interna;onaliza;on of the Yuan.
having sold US$11 billion worth in 2015.

Cluster Analysis: KPIs
KPIs for a qualita1ve and quanta1ve compe11veness analysis of Europe’s three
main financial clusters
KPI Financial Clusters How? Why?
Financial Sector Development The GFCI (Global Financial Centres Index), provides ra;ngs for financial
centers calculated by a ‘factor assessment model’ that uses over one
•  Value of trade / stock exchanges
• Value
QUANTATIVE
hundred different instrumental factors to assess a financial center’s
•  Banking concentra;on of credit ins;tu;ons

• Number compe;;veness. It groups all instrumental factors in the following five
ANALYSIS
categories, which are used in this cluster compe;;veness analysis as the
•  Growth of banking concentra;on
• Percentage of growth of number of credit ins;tu;ons key KPIs:

•  Interna;onaliza;on
• Percentage of interna;onal banks compared to local banks • 
• 
Financial Sector Development
Infrastructure
•  Growth of interna;onaliza;on
• Percentage of growth of interna;onal banks
compared to local banks
• 
• 
Business Environment
Human Capital

•  Reputa7onal & General Factors
•  Rela;ve size of financial sector of financial ins;tu;on per capita
• Number
H u m a n C a p i t a l w a s f u r t h e r
subdivided into Research and
Educa;on, and Quality of Life, which
Infrastructure Ci7es Loca7on, transporta7on, airport, roads, harbors, etc. are two big KPIs of this GFCI
category and are selected due to
QUALITATIVE
their importance in the cluster.

Business Environment City abrac7veness for financial businesses (taxes, regula7ons, etc.)
ANALYSIS

S i n c e t h e fi n a n c i a l f a c t o r
Human Capital: development itself can be iden;fied
as the core of the cluster it is also
•  Research & Educa;on
Rankings & Quali;es of Research & Educa;on Ins;tu;ons
• Number, further subdivided into 6 categories
regarding the value, number of
of Life
•  Quality • City a Qrac;veness for public (cost of living, income level, etc.) players, interna;onaliza;on, and
growth factors, which will stress the
Reputa7on & General General city and cluster reputa7on, innova7ons & interna7onaliza7on main differences and similari;es
between the three clusters.

Quan==ve Analysis
Frankfurt has a lower banking concentra1on due to the different na1onal banking system with a
high amount of local Volksbanken and Sparkassen, but growth the strongest.
KPI Financial Clusters London Paris Frankfurt Explana7on
Value 13.0 Bil. € 2 3.4 Bil. € 3 15.7 Bil. € 1 Value of Trade / Stock Exchange
Financial Sector Development
Banking concentra7on 2 1 3
QUANTATIVE ANALYSIS
264 285 182 Number of Credit ins;tu;ons
Growth of banking The en;re financial sector faces serious challenges.
concentra7on ~ 0 % 2 ~ -‐ 35 % 3 ~ + 16 % 1 Frankfurt is in a liQle beQer posi;on due its
differently structured na;onal banking system.
The ci;es of Frankfurt and London have more than

Interna7onaliza7on >50 % 1 30 % 3 > 50 % 1 50% interna;onal banks compared to local banks,
while Paris has only about 30%.
Growth of
interna7onaliza7on + 1 0 3 + 1 Percentage of growth of interna;onal banks
compared to local banks
Rela7ve size of financial 31 25 48

Related to Frankfurt’s popula;on it has c.a. 48
sector Ins;tu;ons/
Mio. Capita
2 Ins7tu7ons/
Mio. Capita
3 Ins7tu7ons/
Mio. Capita
1 ins;tu;ons, while London has 25 and Paris 31.


Qualita=ve Analysis
London is currently s1ll the leading financial centers followed by Frankfurt and Paris.
Frankfurt has the poten1al to catch up to London.
KPI Financial Clusters London Paris Frankfurt Explana7on
The ci;es together have the three biggest European

airports and a good transport infrastructure. However,
Infrastructure Very
13.0 B il. €
good 2 Very
13.0 B il. €
good 3 13.0 Bil. €
Excellent 1
QUALITATIVE ANALYSIS
Frankfurt has the best transport infrastructure and road

connec;ons as well as the shortest travel distances.
Due to regula;on and taxes, London is the most
Business Environment aQrac;ve city. However, the ECB is turning out to be a

264
Excellent 1 264
Very good 3 264
Very good 2 guarantee for employment and safeguards the long-‐
term aQrac;veness of Frankfurt as a banking loca;on.
Universi;es and interlectual capital are higher in
Human
Research & Educa;on Excellent 1 Excellent 2 Very good 3 France and the UK. Paris, however, needs to beQer
market itself.
Capital
Quality of Life Very good 1 Very good 2 Good 3 Cost of living & Income level
City reputa;ons: glamourous financial London, more

Reputa7on & General Excellent 1 Very good 2 Good 3 down-‐to-‐earth clean Frankfurt & the aQrac;ve Paris.
London is most innova;ve & interna;onal, Frankfurt
follows in innova;on (Fintech) & Paris in the other.
London is currently s;ll the

RESULT Ø 1.45 1 Ø 2.55 3 Ø 1.81 2 leading financial centers
followed by Frankfurt and Paris

Sta=c Analysis Financial Cluster Comparision
Current state: London before Frankfurt and Frankfurt before Paris.
London Paris Frankfurt
Cluster performance: Cluster performance: Cluster performance:

Currently, London remains the undisputed leading financial center in Although when thinking about Paris other industries such as luxury and With only one point less than London, and great results in financial
fashion come to mind first, it is indeed one of the biggest finance sector development, business environment and infrastructure,
Europe. The Bri;sh city ranks first, one point before Frankfurt and ten
clusters in Europe. Frankfurt is the biggest threat to the Bri;sh capital in becoming
points before Paris, in our analysis of the core criteria of a financial Europe’s new financial HQ.
center. Paris’ banking system is of centralized character with a high

Frankfurt ranks so high compared to Paris (nine points more) due to the
The city has established the best reputa;on for finance and provides an concentra;on of banks in its financial center, namely 60% of all French growth factors and number of interna;onal banks. Meaning only the
excellent business environment as well as good infrastructure. Mainly banks are located in Paris, which are however declining in numbers German financial district was able to increase the numbers of banks
due to its history and the English language it is the most interna;onal due to current fluctua;ons in the sector.
probably due to its proximity to the ECB, which is an important
financial center of Europe. Its interna;onalism helps the city to be
Paris’ financial cluster has a good infrastructure, business environment, argument in choosing a loca;on for many domes;c and foreign banks.
more aQrac;ve for foreign investors. London also provides a wide and access to human capital and reputa;on. The French capital ranks The expansion of the ECB into the primary European authority for
range of services pushed by innova;on in finance. The network within high in four of the five main financial cluster KPIs, however on the most banking supervision has made a significant contribu;on towards
the cluster to e.g. research ins;tutes & universi;es is marvelous. important one, the financial center development, it shows weaknesses stabilizing Frankfurt’s financial sector labor market.
Oxford and LSE, two of the best ranked universi;es in the world are compared to Frankfurt and London due to a lower number of

In addi;on, the German banking system is organized differently

also part of the cluster. Addi;onally, London’s huge market size interna;onal banks as well as a lower trade value in the French stock compared to Paris and London, meaning it is typified by
provides enormous liquidity, which is the base of market efficiency. exchange. Although Paris has the highest number of banks, its growth decentraliza;on, with a compara;vely large number of smaller banks.
Also, London’s par;cipa;on in major interna;onal financial markets rates are declining.
Thus, around three quarters of German banks form part of the
(for instance OTC, Interna;onal bonds) gives large opportunity for Paris also established strong connec;ons and a high amount of
ins;tutes and agencies resul;ng in a wide network of its financial regionally-‐focused savings banks, the so-‐called Sparkassen and
London's financial service cluster. Volksbanken. Due to this decentralized nature only 10 % of all credit
cluster.
ins;tu;ons in Germany were based in Frankfurt’s financial center
However, the global financial market share of the cluster in the UK has All in all, although Paris shows currently some weaknesses in the region at the end of 2015. However, more foreign credit ins;tues have
been decreasing for recent years due to the growth of the financial financial development its reputa;on, human capital, infrastructure, and seQled around the German city during the last decade (160 foreign
services in other parts of the world, especially in Asia. This could have business environment allow the city to be a good poten;al compe;tor banks are based in Frankfurt in 2015) and 80 % even set up an Head
possibly been caused by the declining influence of co-‐loca;on for in becoming the new financial center of Europe. quarter in “MainhaQen“.
services, meaning younger financial clusters in other parts of the world

Overall, Germany’s financial center has successfully held its own and
provide services on lower cost and thus can become subs;tutes to managed to posi;on itself more effec;vely, especially in rela;on to its
London – especially under the current poli;cal threats. French counterpart.

Dynamic Analysis Financial Cluster Comparision
Europe’s financial sector is currently in a transi1on period. The United Kingdom’s
rela1onship to the EU or the future development of the euro might change dras1cally.
Scenario 1: Scenario 2: Paris financial cluster
Europe’s #1 financial center: Frankfurt Europe’s #1 financial center: Paris Europe’s #1 financial center: London
Reason & Probability Reason & Probability Reason & Probability

•  Due to the current poli;cal situa;on in the European Union, •  Due to the current poli;cal situa;on in the European Union, •  The UK and London have all the advantages needed to retain
the discussion of a European stock exchange, and the threat the discussion of a European stock exchange, and the threat their global pre-‐eminence in financial services, but will have to
of “Brexit” materializing, there is a good chance that the of “Brexit” materializing, there is a good chance that the work hard to remain aQrac;ve for an industry whose firms
financial capital of Europe is going to be relocated. financial capital of Europe is going to be relocated. and talent are interna;onally mobile. The London cluster
•  Frankfurt already has the ECB and a comparably stable •  Although Paris is not as compe;;ve as Frankfurt to become meets new opportuni;es and threats coming from the UK and
financial sector. The city would provide the perfect the processor of London, the EU is cau;ous about how much the world.
infrastructure and good business environment as well as more power to give to Germany. Currently it is the power •  London‘s current standing as the financial capital of Europe is
network, which currently places the city as the runner-‐up of house of the EU and due to its history people are rather extremely instable. If the “Brexit” materializes it would have a
the financial capital of Europe. reluctant for it to get more power. nega;ve impact on London, which could consequently
•  The probability of this scenario is closely linked to the •  Paris has a higher popula;on of 12 mio. compared to 4 mio. in struggle to remain the foremost financial loca;on in Europe.
outcome of the Brexit referendum. If Britain exists the EU Frankfurt, thus its GDP is considerably higher (510 bil. € vs 180 •  The probability of London retaining its current posi;on can
(current probability: 50%) then this scenario is the most bil.€) increasing the probability of it taking the leading role. rise or fall with the Brexit referendum.
likely.
Poten7al Consequences: Poten7al Consequences: Poten7al Consequences:
•  A European “super exchange” will be created in Frankfurt, •  20% of London finance jobs will move to the EU-‐ thus to Paris •  This assessment of London’s financial cluster is based on the
which will raise the bar for growing compe;;on from abroad. •  The power of the EU is more divided and thus there is a lower assump;on of no “Brexit”, thus there are no consequences if
Deutsche Börse and the London Stock Exchange will merge risk for all member states. London remains the financial capital of the Eurozone as long
and the headquarters will be located in Frankfurt. •  Paris will expand its Fintech hub in order to beat Frankfurt’s as they are part of the EU.
•  20% of London finance jobs will move to the EU-‐ thus to hub in becoming the Con;nental European Fintech hub.
Frankfurt. •  New businesses, opportuni;es and hubs will arise in in Paris. •  If Britain however exits the EU and the financial HQ of Europe
•  Germany will consequently gain more power in the •  If a European “super exchange” will be created the poten;al would remain short term in London many new challenges
Eurozone. would be located in Paris where Euronext and the London would arise. If London is able to face new challenges, its
•  New businesses, opportuni;es and hubs will arise in in Stock Exchange merge. (rather unlikely) financial cluster can maintain its leadership.
Frankfurt.


AGENDA

Cluster Analysis
2.
Financial Sector Cluster Policies
3. Firm Analysis
Main Players Suppor;ng Players
Deutsche Bank, as one of the biggest actors in the cluster, is
chosen for detailed analysis. It shows to be a par;cularly Interac;ons 7 Gap Model
interes;ng example as it reflects the fragile state of the global
Diamond Model
finance industry. The railway model shows that Deutsche Bank
currently faces the need to change tracks. Strategy
SWOT Analysis
4.
Recommenda;ons Railway Model

Deutsche Bank -‐ Overview
Deutsche Bank is largest German bank. It faced a significant loss of EUR 6,7 billion
in 2015 and experienced a dropping share price over the last three years.
Overview Deutsche Bank is ac;ve in commercial banking and investment banking.
Founded: 1870 in Berlin, Germany
Head Quarters:
Frankfurt; Germany
Employees: 101,104 (2015)
Products: Various financial services to private clients, corporate clients,
ins;tu;ons, agencies, and governments.
Interna;onality: Branches in 70+ countries
Assets: 1,629,130 M€1
Ra;ng: BBB+ (Standard & Poor’s)
40,000.00 €
30,000.00 € 33,228.00 € 33,736.00 €

31,915.00 € 31,949.00 € 33,525.00 €
Million EUR
Net Revenue
20,000.00 €
Net Income
10,000.00 € 4,326.00 € 316.00 € 681.00 € 1,691.00 € -‐6,772.00 €
-‐ €
-‐10,000.00 € Educa;on & Research Other Banks FinTech

2011 2012 2013 2014 2015
37.00 Deutsche Bank funds research Most financial services skills are Deutsche Bank has
29.44 and collaborates with leading acquired by shared experience, and by included collabora;on
32.00
32.95 34.68 24.99 universi;es in Frankfurt, for technology innova;on. As the with/acquisi;ons of
Share price
27.00 22.53
EUR
at period end example the Goethe University, knowledge oWen is tacit, knowledge FinTech companies in their
22.00 to intensify the exchange sharing requires geographical strategy to offer more
14.85 between research and prac;ce. proximity. The presence of Deutsche innova;ve solu;ons to
17.00
The company offers many Bank is therefore aQrac;ng other clients and to make
12.00
graduate programs to aQract players, and other players will help to internal communica;on
2011 2012 2013 2014 2015 2016
1 top talent. improve skill level at Deutsche Bank. more efficient.
1
Deutsche Bank – Strategy and Current State
Its strategic reac1on is focused on process op1miza1on and risk reduc1on.
Coopera1on with FinTech is only considered for incremental changes.
•  Deliver financial solu;ons, technology, products and services that exceeds SWOT Analysis
Goals the client’s expecta;ons.
•  Become the most respected financial services provider across all customer segments
in Germany; the number one bank for our corporate, ins;tu;onal and fiduciary clients in Strengths Weaknesses
Europe; and the best foreign bank in the United States and Asia. -‐ One of the biggest banks in Europe -‐ Reputa;on as risk-‐taking creates difficul;es when economic
-‐ Long history and strong brand name and market condi;ons are becoming more challenging
Strong partnership with clients, a large interna;onal network, highly skilled
Business employees, and a broad range of banking products and services including
-‐ High interna;onal presence -‐ $19 Bn fine from the U.S. Jus;ce Department for faulty
-‐ Big, loyal clients trades is making investors leave the bank
Model commercial and investment banking, retail banking, transac;on banking, and
-‐ Broad product offerings aQracts big clients with varied -‐ Recent losses is forcing the bank to restructure and cut down
Asset and Wealth management.
needs on costs instead of focusing on growth
Strategy 2020 Applica7on Opportuni;es Threats

-‐ Expansion into emerging markets -‐ Strong compe;;on from other banks
Turn losses into profits by cu‡ng Employment: The bank is le‡ng 9’000 people go and has
-‐ Acquisi;ons to sustain growth -‐ Brexit causes an uncertain future as 19% of revenues comes
costs put on a hiring freeze on the organiza;on.
-‐ Diversifying and increasing clients’ por†olios from the UK
§  Become more efficient by
Loca7ons: The bank is closing down offices both -‐ Inves;ng in CSR to create reputa;on as caring -‐ New rules and regula;ons from government or EU
reducing the number of
domes;cally and interna;onally and moving trading -‐ Collaborate with FinTechs to become market leading in -‐ Changes in interest rates
products and services and
ac;vi;es to global and regional hubs. technology solu;ons within the industry
focus on deeper rela;onships
with the best clients
IT systems: Increase collabora;on with FinTech companies
§  Lowering risk profile by saying Example for Compe;tors
to offer beQer online banking and streamlining internal
no to marginal business more
system. 2015 Deutsche Bank Commerzbank BNP Paribas HSBC Holdings
oWen when in doubt
§  Be beQer capitalized in order Clients: Decrease number of clients, especially in risky Head Quarters Frankfurt, De Frankfurt, De Paris, Fr London, UK
to not have to play catch-‐up markets, and deepen the rela;onships with important ones Assets 1,629.1 Bn€ 532.6 Bn€ 1,994.2 Bn€ 2,217.4 Bn€
with regula;on and market
expecta;ons Products: Exit certain products such as certain Credit Net Profit (6,772.0) Mn€ 1,062.0 Mn€ 6,694.0 Mn€ 13,891 Mn€
§  Be a simpler and beQer run Default Swaps and Legacy rates products, agency Employees 101,000 51,000 190,000 257,000
bank Residen;al Mortgage-‐Backed Securi;es trading, and higher
risk-‐weight securi;zed trading. Ra;ng Standard & Poor BBB+ BBB+ A A
07/03/17
Stockholm School of Economics 31
Deutsche Bank – Railway Model
Deutsche Bank is currently at a railway sta1on an has to decide for a change of
tracks, since it is obvious that the current way has liRle future.
1873 1989-‐1998
1870
The bank open its first Acquisi;on of a number of European
Deutsche Bank was 1942-‐1943
interna;onal branch in banks increased the banks interna;onal
founded in Berlin. Nazi regime and WWII
London, which becomes compe;;veness even more.
the most important forced the bank to close 1999
interna;onal branch. many offices, na;onally as 1976-‐1979 Acquisi;on of the
interna;onal Interna;onal expansion Bankers Trust in the U.S.
1914 2004 – 2007
through opening of foreign opened up the U.S.
Forced to close London office Opening of offices in
branches. market
due to war but Deutsche Bank emerging markets such as
mergers with Bergisch China, Russia and India.
Mäkische Bank and the
“Frankfurter Zeitung” acclaims
Duetsche Bank to be “the 1947-‐1948
1959 2016
biggest bank in the world”. As a aWermath of WWII,
Deutsche Bank enters Presence in more than 70 countries all over
Deutsche Bank is forced to
retail banking aWer the world. Germany’s biggest bank and
split up into ten companies.
introducing small ranked among the top 30 biggest banks in the
personal loans world. Standing at sta;on aWer $14 Bn
penalty from the U.S. Jus;ce Department
aWer faulty trades, a nearly 50% loss in
market value, and an uncertain future due to
Brexit, which road to take?
1929 1958
1937 1957
Deutsche Bank mergers with its On behalf of Anglo-‐
Deutsche Bank gets The ten companies are
biggest compe;tor Disconto-‐Ge-‐ American Corpora;on of
back its name. merged together to form
sellschaW; to keep up with the South Africa, Deutsche Bank
Deutsche Bank again. oats what is the first foreign
increased concentra;on in the
industry and becomes the biggest bond on the German capital
bank in Germany. The new en;ty market since 1914
keeps the two names.

AGENDA

2. Cluster Analysis
Financial Sector Cluster Policies
3. Firm Analysis
Main Players Suppor;ng Players
4. Recommenda;ons
Interac;ons 7 Gap Model

Measures are presented that will help the cluster to further Diamond Model
increase compe;;veness and take London’s place as the leading
Strategy
European financial cluster aWer Brexit.
SWOT Analysis

Railway Model
Recommenda;ons

Recommenda=on – Na=onal Level
Germany Should lower corporate taxes and administra1ve processes for start-‐ups
as well as lobbying Frankfurt as the financial center of the future
Na;onal Level Recommenda;ons Policy Effects on Cluster Diamond
Domes;c Policies
Strategy, Rivalry,
General Structure
•  Lower corporate taxes to aQract more businesses– Germany’s corporate tax level is 29.72%1 which is clearly above EU Easier administra;ve process
average of 22.09% to start and run young
•  Lower bureaucracy for SMEs. Germany has already adapted system for implementa;on of new laws to “one in, one companies will increase the
out”, but should con;nue to make it easier to start a business to aQract more start-‐ups. number of start-‐ups, which
Innova7on and Entrepreneurship will boost innova;on in
•  Increase accessibility to capital for start-‐ups and young companies by simplifying policies for venture capital and cluster and force companies
crowdfunding.
to change strategies.
•  R&D tax incen;ves – encourage entrepreneurship and innova;on by giving tax incen;ves for companies inves;ng a lot Factor
in R&D. Condi7ons Demand Condi7ons
Increase in Possibility of Increased
entrepreneurial spirit demand for innova;ve
and diversity in labor solu;ons with increase
force. level of diversity and
“innova;on in the air”.
Possible Outcomes Na;onal Level
Suppor7ng
•  Increase in number of companies due to higher aQrac;veness with lower corporate taxes. A higher number of
& Related Industries
companies will also help to balance out the lower taxes provided by each en;ty.
Stronger suppor;ve industries with
•  Lower bureaucracy and administra;ve processes and simpler policies for Venture Capital and other types of funding for
SMEs will help to aQract more young companies, which will help to boost innova;on. increase in number of companies
•  R&D tax incen;ves will encourage entrepreneurship and aQract start-‐ups as well and also strengthen the research with less stringent tax regula;ons and
conducted at German Universi;es. ;me to business. Increase in level of
•  Frankfurt takes over London’s posi;on as the biggest becomes Financial center in Europe aWer Brexit. support with increase in innova;on.
•  Increase in entrepreneurial aQrac;veness will aQract people from other countries and help to increase diversity.

Recommenda=on – Cluster Level
To be successful in the future, the cluster needs to lay priority on the integra1on of
start-‐ups and new ideas, that will change the business model of banking.
Priority 1st 2nd 3rd 4th
Problem Start-‐Up Integra;on Educa;on Lifestyle Close Gap to Popula;on

•  Use exis;ng bridge builders (e.g. •  The general level of educa;on in •  Frankfurt has to realize the economic •  This task is the most difficult and
Frankfurt-‐Main-‐Finance e.V.) to Germany is quite high. The German value of a vivid cultural and culinary calls for a lot of pa;ence. Financial
involve start-‐ups in discussions, system, however, does not aim for life and encourage diversity. ins;tu;ons are highly dependent on
knowledge exchange and provide a single, outstanding universi;es. •  Further Frankfurt has to get rid of government policies. Currently the
pla†orm where start-‐ups can present •  Especially the finance industry is the false image of a cold, businesslike public opinion of the financial
their ideas to the financial seeking for top graduates of city. In reality has much to offer with industry is bad -‐ especially because
ins;tu;ons outstanding universi;es. a mix of modern, interna;onal of the public bail-‐out in the financial
•  Banks should collec;vely engage in •  As educa;on is a federal maQer, the culture in the city and lovely crisis – and public opinion naturally
the pla†orm and provide venture state Hesse can focus resources in tradi;onal hessian culture and affects government ac;ons.
capital financing opportuni;es. This leading finance-‐centered educa;on beau;ful landscapes in the Taunus •  Banks have to communicate their
Measures helps evolving an innova;on focused facili;es. area. To achieve that leading bank strategic adap;on towards lower
scene around Frankfurt and ensures •  Further, the financial industry is in execu;ves should be invited and risks (and of course actually
that banks are con;nuously informed need for interna;onal, English introduced to the various facets of implement changes). A simple act of
about new developments. speaking primary and secondary the area, which includes showing apology can be a first step.
•  The city of Frankfurt and the state educa;on. Especially employees restaurants, hotels, bars, nature and •  The public should be educated in the
Hesse should promote and finance currently working in London will face of course office space and real estate dynamics of the financial markets
start-‐up incubators and provide the need to place their children in projects for housing. Frankfurt has to and their economic effects. This can
educa;onal support for founders. interna;onal schools. Capaci;es show that it can provide an be done in free lectures in
have to be increased. appropriate life to thousands of coopera;on with the universi;es.
addi;onal bankers.
Bridge builders, banks, city of Frankfurt City of Frankfurt, Frankfurt-‐Main-‐
Actors and the federal state
City of Frankfurt, federal state
Finance e.V.,
Banks, Universi;es

Recommenda=on – Firm Level
In addi1on to their new Strategy, Deutsche Bank has to lay great focus on a cultural
change. A big part in achieving this change is adap1ng the incen1ve system.
Incen7ve System
In general, the share of bonuses
of the total salary has to
decrease. Employees must not
fear severe consequences on
their lifestyle if the bonus is not
reached. This otherwise would
again promote fraud. DB should
Present focus on non-‐monetary
opportuni;es as complement for
financial compensa;on (e.g. ;me
Past Culture Target Culture Shared Benefit and Responsibility for further educa;on or social
Deutsche Bank is known for being par;cularly The aim is to change Deutsche Bank’s culture In order to limit the possibility of hidden illegal projects)
risk-‐averse in an industry that itself has a high towards compliance and a sustainable mindset ac;vi;es, responsibili;es should be transferred
tendency towards risks. The former CEO, Josef without losing the high performance to teams. This also means that superiors are Salary Composi7on
Ackermann, was known for holding the goal of environment. held responsible for ac;ons of subordinates.
Department Perf. (10%)
25% rate of return above everything. When Prior reprocessing of illegal ac;vi;es oWen led
other banks reacted to regulatory change and to simply finding a scapegoat. Therefore a Team Performance (10%)
decreased the importance of investment Failure Acceptance independent ethic commission has to enforce Individual Performance (10%)
banking, Deutsche Bank was s;ll driving an Hiding a prior bad investment or other mistake compliance and also hold superiors accountable
aggressive expansion strategy.1 is oWen the reason for misconduct. Failure in if they set unreachable goals that lead to illegal
For years, the bank was involved in legal good will has to be tolerated. This means that ac;vity.
processes for malprac;ce. Although these illegal single failures must not cri;cally affect ones Further this means that everyone’s evalua;on Fixed Salary
ac;vi;es were oWen conducted by individuals, career path. A great measure to start also is dependent on team performance, as (70%)
the mere quan;ty of misdoings is a clear establishing such a culture is that successful shown in the incen;ve system.
indicator for a corrupted culture. execu;ves share their prior failures.

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Frankfurt Financial Cluster

07/03/17 Stockholm School of Economics 2

Interac;ons 7 Gap Model

2. Cluster Analysis Diamond Model

3. Firm Analysis Strategy

07/03/17 Stockholm School of Economics 3

Frankfurt Rhine Main …and ﬁgures2 60.00%

07/03/17 Stockholm School of Economics 4

07/03/17 Stockholm School of Economics 5

07/03/17 Stockholm School of Economics 6

07/03/17 Stockholm School of Economics 7

07/03/17 Stockholm School of Economics 8

++ Large, growing and highly compe;;ve economy

07/03/17 Stockholm School of Economics 9

3. Firm Analysis Strategy

07/03/17 Stockholm School of Economics 10

Regula;ng Ins;tu;ons Related Clusters

Banks provide services (cash mul;ply the EBS Mannheim University

07/03/17 Stockholm School of Economics 11

Middle Ages 1440 1585 1948 1957 1998 Today Tomorrow?

07/03/17 Stockholm School of Economics 12

Commercial Banking Investment Banking

07/03/17 Stockholm School of Economics 13

European Central Bank European Systemic Risk

Interest Rates Merger With London Stock Exchange

07/03/17 Stockholm School of Economics 14

Between Banks and

07/03/17 Stockholm School of Economics 15

Audi7ng Ra7ng Agencies

07/03/17 Stockholm School of Economics 16

Metropole Region Rhein-­‐Main

European Supervisor Educa;on academics conduct research)). Frankfurt am Main

07/03/17 Stockholm School of Economics 17

Trade Fairs & Events Related Clusters & Hubs

Bridge Builders Firm to Government

Firm to Research Firm to Firm

07/03/17 Stockholm School of Economics 19

Strategy, Structure and Rivalry Frankfurt Finance Compe77veness

• The merger of Deutsche Börse with London Stock

infrastructure and customer accounts by business model.

07/03/17 Stockholm School of Economics 21

07/03/17 Stockholm School of Economics 22

Paris Financial Cluster Overview

07/03/17 Stockholm School of Economics 23

hundred diﬀerent instrumental factors to assess a ﬁnancial center’s

• Banking concentra;on of credit ins;tu;ons

their importance in the cluster.

07/03/17 Stockholm School of Economics 24

264 285 182 Number of Credit ins;tu;ons

The ci;es of Frankfurt and London have more than

Rela7ve size of ﬁnancial 31 25 48

07/03/17 Stockholm School of Economics 25

KPI Financial Clusters London Paris Frankfurt Explana7on

The ci;es together have the three biggest European

Frankfurt has the best transport infrastructure and road

Universi;es and interlectual capital are higher in

City reputa;ons: glamourous ﬁnancial London, more

London is currently s;ll the

07/03/17 Stockholm School of Economics 26

Metropole Region Rhein-‐Main

•  The merger of Deutsche Börse with London Stock

•  Banking concentra;on of credit ins;tu;ons

-‐10,000.00 € Educa;on & Research Other Banks FinTech

Problem Start-‐Up Integra;on Educa;on Lifestyle Close Gap to Popula;on