Ireland missed out on one of the most significant prizes in the race to attract investment from the City of London after Brexit because its credit rating was too low.
Standard Chartered, the banking giant that focuses on emerging markets, said it would spend about $20 million to make Frankfurt its European base and secure market access to the EU when Britain leaves the bloc.
The bank said in May that it was in talks with regulators about making Frankfurt its base and that Dublin was the other destination in the running.
Bill Winters, the chief executive of Standard Chartered, said it was “a very close call” but that Dublin lost out because of its weaker credit rating. Ireland has an A credit rating with the main rating agencies whereas Germany has AAA status.
“It would have been easy to set up [in Dublin] also. But at the end of day it involved an interesting issue around the country’s credit rating. We felt large institutional investors would prefer Germany,” Mr Winters told Reuters.
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A country’s credit rating caps that of any bank subsidiaries operating in it, meaning if Ireland’s rating fell, Standard Chartered’s business there could become more expensive or risky for counterparties to deal with.
Standard Chartered already has a hub in Frankfurt from where it conducts euro clearing activities.
“It will cost us $20 million probably,” Mr Winters said of the associated costs of converting that branch to a subsidiary. “Capital won’t go in until you activate the subsidiary, so let’s say March 2019 and that amount is purely dependent on Bafin [the German banking regulator], but would probably be in the hundreds of millions.”
Standard Chartered has about 100 staff in Frankfurt and office space capacity to add another 20. “One question is, where can people sit after Brexit?” Mr Winters said. “It would be costly to physically move all your people who deal with a European client.”
Global banks have started enacting contingency plans to ensure they can still serve EU clients after Britain leaves in March 2019 and the cost of those plans has begun to emerge.
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HSBC said this week it could spend up to $300 million moving up to 1,000 jobs and parts of its business to Paris. RBS said on Friday it was in discussions with the Dutch central bank to use the Netherlands as its trading base.