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NEW YORK (Reuters Breakingviews) - There is no more cliché pairing than a Hermes tie with an investment banker in a tailored suit. So it is only fitting that Paris – where the luxury goods firm began in a small workshop 180 years ago – would emerge as a frontrunner over Frankfurt, Amsterdam and other European cities to pick up many of the financial industry castaways who will be sent packing by Brexit.
And the allure of the City of Lights extends far beyond fashion, or even “la belle vie”, to hard numbers. Paris Europlace, a consortium of trade associations working with the local government to attract financial industry jobs, has a surprisingly convincing case, which it has pitched to more than 100 banks, multinational corporations and fund managers since Britons voted last June to leave the European Union.
Less persuasive is the complacency of many in the French establishment and financial elite towards the country’s fractious presidential race. France, they say, is different from the United States and Britain where voters upset all expectations, defied pollsters, and embarrassed the media’s self-confident prognosticators.
But the scandal engulfing the erstwhile frontrunner, the centre-right’s Francois Fillon, suggests unpredictability is not uniquely Anglo-Saxon. Though French voters may not succumb to the populist instincts that put Donald Trump in the White House and sent the UK packing, it would be foolish for any bank boss to choose Paris as a post-Brexit safe harbor until after French voters cast their final ballots on May 7.
This is not a ding against Paris as a financial center. Europlace is doing a bang-up job making the city’s case, as a packed press conference on Monday at London’s Shangri-La Hotel demonstrated. An hour spent with Managing Director Arnaud de Bresson at the group’s Place de la Bourse headquarters makes for a compelling lesson in the merits of French finance.
Consider some of the stats, as outlined in the 34-page Europlace dossier that has landed on the desks of every banking boss in London, New York, Toronto, Beijing and Tokyo. The Paris bourse ranks first in market capitalization in Europe. France also sported 854 public companies, compared with 619 in Frankfurt at the end of 2015. The French bond market is bigger than Germany’s – a reflection of the respective countries’ different fiscal and budgetary approaches. There’s also more trading of over-the-counter interest rate and foreign exchange contracts in Paris than anywhere else in continental Europe.
Perhaps more compelling for investment bankers bereft of their ability to “passport” throughout Europe from London is the concentration of large companies, banks, fund managers and private equity houses in Paris. As de Bresson puts it: “Frankfurt may be a place to see bankers, but Paris is where you can actually see clients.”
There are 31 French multinational companies among the 500 world leaders in their respective industries, such as Airbus in aerospace; Vivendi in media; Sanofi in drugs; LVMH, L'Oreal and, of course, Hermes in personal and luxury goods. That compares with 28, by Europlace’s count, in Germany, and most of them are not headquartered in one city.
The French asset management industry is also ahead, overseeing 3.6 trillion euros of client money. That’s double the amount managed by German institutions, and four times what Italian money managers oversee. In the more fee-generative private equity arena, France also leads its neighbors, with 11 billion euros invested in 2015 compared with 6 billion euros in Germany.
Even in banking, Paris has an edge. BNP Paribas vies with Banco Santander as the largest bank on the continent by market value, at around 75 billion euros. Societe Generale and Credit Agricole clock in at around 35 billion euros each, making them 40 percent more valuable than Deutsche Bank.
Finally, there’s Paris: an undisputed global cultural capital and gastronomic ground zero, with nearly seven times the number of Michelin-starred restaurants as Frankfurt. Or as Yves Perrier, chief executive of Amundi, a listed $9 billion fund manager, demonstrates with a gesture towards the window of his Montparnasse office with the Eiffel Tower in the middle distance: “You won't find a view like this in Frankfurt.”
The icing on the éclair for firms considering moving some financial operations to Paris, or the 300,000 or so French expats living in London, comes in the form of a more favorable tax regime. Under rules unveiled after Brexit, France reduced the effective tax rate for high earners for as many as eight years by, among other things, exempting some foreign financial investment income and excluding foreign properties and assets from wealth tax calculations.
According to Europlace figures, the effective tax rate for qualified individuals earning 300,000 euros a year would be 24 percent under this so-called “impatriate scheme” compared with 38 percent under the old regime, or in Germany. In addition to foreigners moving to Paris, this would apply to French bankers and traders returning home.
Under a centrist, pro-European government, incentives like these – alongside the many other charms Paris has to offer – make the city a formidable challenger to Frankfurt. But with a shift to the far left or right, the idea of tens of thousands of rich bankers moving into the city, driving up housing prices, snatching coveted school placements and paying lower tax rates than bakers could make Robespierres of even the mellowest of French socialists.
Two weeks ago, that seemed impossible. But the fluidity of the political situation is highlighted by the swift decline of Fillon in the polls following reports that his wife received taxpayer-funded payments for work that a newspaper alleges she did not do. Though Fillon’s woes have helped independent centrist candidate and former investment banker Emmanuel Macron’s chances, they have also boosted the fortunes of the “business-unfriendly hard left”, as my colleague Swaha Pattanaik wrote.
Over the weekend, Macron urged American scientists, academics and entrepreneurs worried by the direction of the country under Trump to consider moving to France. It’s a bold, globalist call from a young and relatively untested politician. He – along with any bankers and scientists heeding him – must recall the lesson of the U.S. election, with its late-stage surprises and Russian meddling: anything can happen.
On Twitter twitter.com/rob1cox
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