CFS Financial Center Index continues to rise

Financial institutions to hire and invest more / Euro crisis expected to intensify

1. Index Development

FRANKFURT, 1 February. The CFS Financial Center Index shows that financial institutions are in the market to hire new staff. Rising by another 2.9 points compared to the last quarter the index has reached a value of 115.8 points. Again both subindices (performance of the last quarter and projection of the next quarter) have increased across all areas of value creation (revenue, profits, employment, investments), indicating a further improvement of the business climate.
The various groups of participants in the survey (financial institutions and brokerage, financial sector service providers, supervisory and academic institutions, connected enterprises) demonstrate slightly different trends. The financial institutions including banks have seen a substantial rise in employment and investments (+ 7.5 and 6.1 points, respectively). Not only did they surpass their last quarter's survey expectations considerably, for the first time since October 2008 their employment subindex passed the threshold of 100 points. This indicates a net increase of employment. 'Banks start to catch up with the rest of the financial sector. For the first time since the collapse of Lehman the financial sector's nucleus creates jobs,' explains CFS Director Professor Dr. Jan Pieter Krahnen.
The providers of financial sector services have not performed as strongly as expected and missed their expectations slightly (- 2.6 points). After showing very strong numbers the first three quarters of 2010 the service providing sector of accountancy firms, consultancies and law firms have, however, stabilized on a very high level at 120.1 points and continue with strong expectations for 2011 since the projection for the first quarter is at 122.7 points.
The overall positive trend of the figures also translates into the intention of most firms to invest in new business or to expand existing branches.

2. Special survey: Euro crisis

The majority of the financial sector (80%) expects the Euro crisis to continue or even deepen further in 2011. A mere 15% believe that the situation will improve this year. With respect to possible measures to resolve the Euro crisis, the survey panel was confronted with 3 questions covering (1) the issuance of Eurobonds, (2) a haircut on bonds of struggling EU Member States and (3) a European harmonization of national economic policies. For each measure the panelists were asked to give both their expectation and their personal preference (see Figure 2).

Eurobonds face opposition, Haircut earns approval

Contrary to public comments the majority of the panel expects that a common bond will be issued by the euro zone in 2011. Four out of five, however, oppose the issuance of Eurobonds. Almost 70% of the panelists are in favor of a haircut on bonds of EU Member States that are struggling with heavy budgetary deficit. Proponents of this measure are to be found especially among the service providers (75%), and to a lesser extent among the banks (55%). Roughly 80% of those that expect a haircut, envisage that it will be enforced within the next three years, mainly in 2012 and 2013. Most of the financial service sector providers would welcome a haircut already in 2011.

European coordination of national tax and budgetary policies

The majority of the respondents - especially those that welcome the issuance of Eurobonds - regards it as necessary for the EU Member States to harmonize their national tax and budgetary policies: 'A greater coordination of national policies on the European level seems to be a pivotal requirement for the issuance of Eurobonds', says Krahnen. The financial sector is, however, not very optimistic about the chances for such a coordination effort; only few expect successful action in this field in 2011.

Many respondents agree on what should happen to countries that do not fulfill the criteria of the growth and stability pact. 70% of the panel believe that, in these cases, sanctions should apply automatically and without exceptions.

The stabilizing measures to fight the Euro crisis could also have an effect on the ECB: Every second panelist sees the independence of the ECB at stake.

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For any questions, please contact:

Florian Hense Tel.: +49 69 798-30090
Center for Financial Studies Fax: +49 69 798-30077
Goethe-Universität Frankfurt E-Mail: hense@ifk-cfs.de
House of Finance www.finanzplatzindex.de
Grüneburgplatz 1, HPF H5 www.financialcenterindex.com
60323 Frankfurt am Main

Josef Schießl Tel.: +49 69 94 41 80 26
Frankfurt Main Finance e.V. Fax: +49 69 94 41 80 19
c/o NewMark Finanzkommunikation E-Mail: josef.schiessl@frankfurt-
Main Triangel main-finance.com
Zum Laurenburger Hof 76 www.frankfurt-main-finance.com
60594 Frankfurt