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According to reporting by the Financial Times, Deutsche  Bank is planning to offshore a majority of their assets from London back to Frankfurt following Brexit.

Key quotes

“Deutsche could eventually move about three-quarters of its estimated €600bn balance sheet back home. Any transfer of the German bank’s assets “” equivalent to almost half the total held by European lenders in the UK “” would be a big blow to the City of London, which has seen overseas banks move operations to mainland Europe amid the uncertainty of Britain leaving the EU.

The European Central Bank, the chief watchdog of the eurozone’s largest lenders, has insisted that Deutsche bulk up its capital and liquidity in Germany to comply with rules for branches in a “third country”, which the UK will become when it leaves the EU in March.

The supervisor’s demands are becoming so onerous that it is increasingly likely that Deutsche will transform its UK arm into a ringfenced subsidiary after Brexit, say people familiar with the thinking of the bank’s executives.

The initial impact on Deutsche’s headcount in London should be modest, but there are more serious long-term implications of the flight of capital from the City, such as the ECB gaining more regulatory control of banks.

While no final decision has been made on the size of the asset move, Deutsche has already started shrinking its UK activities. Almost half the bank’s euro clearing activities have been shifted to Frankfurt, the Financial Times reported in July, and it is setting up a new booking centre to handle European trades that were booked in London.

One option being considered is to radically shrink the size of the London balance sheet so it ends up smaller than its US holding company, which has roughly $145bn of assets, according to one senior manager familiar with the bank’s Brexit contingency planning. Deutsche has a further $189bn of assets in its New York branch. While the bank does not disclose the size of its UK balance sheet, analysts at Autonomous estimated it was about €600bn in 2016.”

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