Relaunch of the Belgian finance place after the Brexit 24-04-2017 1 - - PowerPoint PPT Presentation

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Relaunch of the Belgian finance place after the Brexit

24-04-2017

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• Presentation of the strategic study

by Grégoire Tondreau, managing partner of Roland Berger Belgium

• Presentation of the conclusions

by Prof. Dr. Bruno Colmant, chairman of the BFC

• Panel discussion lead by Marc Lambrechts, journalist at L'Echo with:
• Luc Bertrand, chairman of Ackermans & van Haaren
• Fabian Vandenreydt, Global Head of Securities Markets, Innotribe & the SWIFT Institute
• Prof. Dr. Bruno Colmant, Executive Board Member de la Banque Degroof Petercam.

Relaunch of the Belgianfinance place after the Brexit AGENDA

Evaluation of competitiveness and recommendation

Brussels, April 24, 2017

The Belgian Finance Place

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The Belgian Finance Place (BFP) is characterized by limited risk taking, resulting in lower economic development

Characteristics of the Belgian Finance Place (BFP) [2015]

Source: Statbel, Febelfin, Beama, ECB, NBB, ONS Business Register, Roland Berger

1) Size of MFIs in Belgium, represented by their balance sheets

What would be the benefits of shift of capital to riskier assets/investments?

Capital allocation Retail banking dominance Limited risk taking Lower economic develop- ment Fiscal Policy

Dynamic

• f the

BFP

Flow to PE / VC (EUR bn) < 0.5

(80% of GDP) (39% of GDP) (0.1% of GDP)

Bank deposits (EUR bn) Asset Managers AuM (EUR bn) 330 160

Allocation of capital

Number of established MFIs Total size1) of MFIs in Belgium (EUR bn)

• f which BE MFIs (EUR bn)

112 1,091 People employed in MFIs (FTE) 55,000 591

Banking activity

Number of inhabitants (m) Gross Domestic Product (EUR bn) 11.2 410

Demographics & Economy

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Following Brexit, banks are leaving the UK - They are however looking outside Belgium

"Lloyd’s of London picks Brussels for European base" Financial Times 30/03/2017

Selected articles

'HSBC could base more staff in Paris in case of ‘Brexit" The Financial Times 26/06/2016 'Dozens of UK banks and financial firms 'looking at moving to Ireland'' The Guardian 25/12/2016 'Brexit: Banks consider ‘moving London staff to Luxembourg to get access to EU" The independent 19/10/2016 "Goldman Sachs considers Frankfurt move over Brexit" Bloomberg 09/11/2016 'UBS Said to Mull Moving London Investment Bankers to Madrid" Bloomberg 19/01/2017

Observations

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Workforce availability Labour conditions Institutional attractiveness

Established financial center SP DE FR LU IL NL Established subsidiaries SP NL Fiscal policies FR SP NL LU DE IL Wage levels & structure SP DE NL IL FR LU Labour flexibility FR SP NL IL DE LU Skilled/talented workforce SP DE NL LU FR IL International character SP DE NL LU FR IL DE FR LU IL

Lacking institutional attractiveness, Brussels is not a EU destination

• f choice for major (UK) banks & insurers in a Brexit triggered move

Key selection criteria for (UK) banks

Source: Reuters, Bloomberg, Roland Berger

Lloyds of London

EU Target Dublin Banks & Underwriters considering to move Frankfurt Madrid Brussels Paris Amsterdam Luxembourg

Hiscox, Beazley, Fintechs HSBC Citigroup, Goldman Sachs, UBS Multiple FinTechs Credit Suisse, Columbia Threadneedle, M&G Investments Goldman Sachs, UBS

Frankfurt A'dam Madrid Brussels London Dublin Paris Luxembourg

Move confirmed

Ranking among EU peers

Munich Paris Dublin Amsterdam Frankfurt London Luxembourg Brussels Liechtenstein Copenhagen Madrid

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We assessed the competitiveness of the Belgian Finance Place along four dimensions, and identified issues and recommendations

> Build strategic vision & ecosystem > Rebalance fiscal treatment of financial assets > Aim for LT stability of fiscal framework > Infrastructure plan

Source: Roland Berger

Diagnose Key Issues Recommen- dations

Banking & Insurance

> Create competitive advantage in digitized banking models > Make shift to fee-based business

Capital markets

> Find common interest towards stock market financing > Direct more money to PE and work on defragmentation > Build-up local AM

FinTech & Infrastructure

> Create ecosystem for SME's & startups to share innovation & talent > Partner with universities

Regulatory & Government

> Limited international footprint > Abundant capital > Low risk taking > Stock market financing is not common > Limited mobilization of domestic capital into PE > Small share of wealth managed by domestic AM > Historically strong in infrastructure > Leading banks collaborate intensively with start-ups > No real FinTech champions > Government present in all dimensions, but has limited impact > Unwanted distortion in choice

• f asset classes

> Gold plating of EU standards > Limited experience in cross- border expansion > Gold plating disadvantage > Limited ability to attract talent > Lack of IPO-culture > Fiscal disincentive to mobilize capital into equity > Less supportive regulatory climate for asset managers > Domestic market size > Regulator is conservative > Lack of Governmental guidance & support > Infrastructure lead not leveraged > Regulatory/ fiscal insecurity > Unbalanced tax framework > No focused strategy

Structural issues: LMS (= Labour cost, Mobility, Stability of fiscal framework)

1 2 3 4

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Although no immediate opportunities from Brexit, the BE retail market shows above average profitability and lower leverage ratios

High profitability

Source: ECB data, HLEG report 2015, Roland Berger

• f assets controlled

by foreign entities

50%

EU 14

7.8% 4.1%

Average RoE ['10-'15] Profitability driven by

interest income

Strong

international presence on BE market

Strong

deleveraging

highest average net interest margin (1,7%)

4th

EU 14

22% 26%

Fee share in income '15

23% 2010 21% 15% 2014 2013 2012 18% 2011 2015 16% 15%

Leverage ratio '10-'151),3)

Key characteristics of the Belgian banking & Insurance market

37% 7% 6% 4% 50% 1

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BE capital markets are characterized by low stock market financing, small domestic PE's and importance of foreign asset managers

• A. Trading platforms
• B. Private Equity
• C. Asset management

400 300 200 100 50 350 150 250 450 148

Nether- lands

1,250

Germany

219

Belgium France

452

UK

92

Average money raised after 1st day of trading in Million Euro ’13-’15 Number of IPO’s 13’-15’ per country of listing

0.04%

Germany

0.21% 0.32% 0.01%

Belgium

0.34%

France

0.38% 0.21%

UK

0.66% 0.22% 0.07%

Netherlands

0.49% 0.21%

Austria

PE money invested in country PE money raised by country

Netherlands

26%

France

30%

UK Austria

8%

Belgium

14%

Germany

16% 69%

Characteristics of the Belgian capital markets

Source: Roland Berger, Invest Europe, EFAMA, ECB, Credit Suisse, NBB

6% 18%

Other

13%

Equity Debt securities

31%

Currency and deposits Investment funds Insurance

19% 13%

0.68% 0.57% 0.20% 1.42% 0.12% Money raised as % GDP % of GDP, 2015

average money invested per PE (m EUR)

67 43 20 44 19 9 AuM by country of fund / Total wealth owned by citizens in 2013 #

2

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Belgium should leverage its historical leadership position in Financial Markets Infrastructure to foster local FinTech ecosystem

Source: Global FinTech Hubs Federation, De Tijd, company websites, Roland Berger Research

FinTech segment Crowdfunding

FMI

Data Management Crypto- currencies & Blockchain Insurance Growth Potential Belgian players Belgian presence Investing & Asset Management Low Payments Medium Low Low Medium Low High

Belgian FinTech market per segment

> Few established FMI's vs growing pool of start-ups > Growth potential limited by lack of a dedicated ecosystem and adequate guidance

ISSUES

3

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Despite initiatives, Belgian FinTechs are being outpaced by other EU hubs, with better access to capital & more supportive regulation

Key initiatives

> Attracting talent is difficult due to limited market size & Government support > Regulator is prudent/conservative > Nascent FinTech Ecosystem

Key Issues

> A collaborative innovation platform > Funded by a.o. the Belgian Government (FPIM) & private financial actors > Connecting with leading global FinTech hub UK

B-Hive – international initiative Accelerators & Networks

1) In 2016, Belgium ranked 118th as a global FinTech hub. Score calculated on Global Financial Center index, Global innovation index, Business Environment index. 2) Based on a 2016 Roland Berger survey with 248 EU FinTechs

Source: Global FinTech Hubs Federation, De Tijd, company websites, Roland Berger Research

FinTech initiatives & accelerators

Paris Frankfurt London Luxembourg

Belgium1)

118th 87th 77th

43th 10th

Fintech HUB ranking [2016]

3 > Increased Governmental support: – dedicated strategy for the FinTech industry – better access to capital > Regulatory framework aligned with the (small) size and complexity of the Belgian FinTech industry

Recommendations

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In Belgium, strong variation in tax treatment across financial assets: – Tax-exemptions – Preferential tax treatments – Withholding taxes – Specific taxes Tax treatment also varies substantially across sectors The distortion favors debt over equity

Current Belgian fiscal framework for financial assets creates (potential) distortions in the financial markets

Rebalancing the fiscal framework could create shift from ST savings deposits to LT / riskier equity, and demotivate overall leveraging

Source: Roland Berger

Current fiscal framework for financial assets

4

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The way ahead

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Despite its unique assets and competences …

Source: Roland Berger

1 2

Talent Technology and infrastructure

3 Collaborative

innovation Location

4

"Belgium Inc." USP

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… Belgium has lost track on all fronts on how to develop and sustain a leading finance place and doesn’t see how to change

Source: Roland Berger

1 2 3

Retired and risk adverse Regulatory and fiscal pressure Gordian knot Resignation

4

> Foreign players lead > Belgium an unattractive finance place > Very few UK players in light of the Brexit > Economic consequences underestimated

Implications

"The lost cause"

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> 1 initiative: create fiscal incentives for risk taking (e.g. Monory De Clercq)

We identified three priority wake-up actions, both simple and effective to relaunch the Belgian finance place

A C B

Risk culture EU

• pportunity

Scalable platforms

How to wake up?

> 1 initiative: build the KYC marketplace of Europe through collaboration of Belgian banks > 2 initiatives: – Re-initiate the project of a European Rating Agency – Get involved as a joint finance place in all EU fintech initiatives

Source: Roland Berger

Wake-up actions

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The Brexit banking matrix: the contenders lining up for London's crown

Lisbon Amsterdam Milan Madrid Dublin Paris Luxembourg Frankfurt

London

Bank Branch Other2) The highest level

• f presence in

each city Darker columns indicate strong presence in a city Darker rows indicate broad presence of a bank

1)

1) Deutsche Bank has a London subsidiary but its main entity is a branch 2) Broker dealer branches are included for Morgan Stanley and Goldman Sachs as they are a significant part of their European network

Source: FT research

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> Promote entrepreneurial mindset: > Deploy the Brussels' finance place with two objectives in mind:

Foster financial entrepreneurialism and boost asset management activity, for both listed assets and Private Equity Change mindsets through increased predictability, legal and fiscal simplification, a less invasive fiscal policy and an improved mobility framework

>For companies, simplify and reduce tax rates >For employees, improve SOP

Sell Brussels as an attractive and innovate hub for European finance in order to attract foreign talent! Stop the Belgian Bashing!

>By political parties >By private associations

Conclusions of the Belgian Finance Club

2 1 3

The Belgian paradox – Savings per capita among highest globally, while BE asset management activity is very low and decreasing

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• Panel discussion lead by Marc Lambrechts, journalist at L'Echo with:
• Luc Bertrand, chairman of Ackermans & van Haaren
• Fabian Vandenreydt, Global Head of Securities Markets, Innotribe & the SWIFT Institute
• Prof. Dr. Bruno Colmant, Executive Board Member de la Banque Degroof Petercam.

Relaunch of the Belgianfinance place after the Brexit

Panel discussion