Goldman Sachs moving up to $60bn of assets to Germany

Bloomberg

Goldman Sachs Group Inc. is shifting as much as $60 billion of assets from the UK to Frankfurt, the latest sign that banks are beefing up their European Union (EU) operations ahead of Brexit.
The Wall Street bank plans to move between $40 billion to $60 billion to its German subsidiary by the end of the year, according to people familiar with the matter who asked not to be named discussing private information.
Goldman Sachs Bank Europe SE, the Frankfurt-based subsidiary that will house the assets, had just 3.4 billion euros ($4 billion) at the end of last year, according to its annual report. Goldman could shift more assets over time if its continental business grows, one of the people said.
With fewer than 40 working days until the UK’s transition period expires, international banks are accelerating plans to beef up in Europe to handle the increase in client activity from January 1. Even if UK Prime Minister Boris Johnson secures a trade deal, finance houses with London hubs will lose their passporting rights.
With JPMorgan Chase & Co. moving $230 billion to Frankfurt, Goldman’s plans mean the two US banks account for almost three quarters of the roughly 400 billion euros that foreign banks will move to Germany by the end of the year, according to the Bundesbank. The moves will almost triple the combined existing balance sheets of non-German lenders in the country, the central bank has estimated.
Other banks to beef up in Germany’s financial hub include Citigroup Inc., UBS Group AG and Standard Chartered Plc.
In September, Goldman accelerated plans to move more than 100 London employees to European cities while JPMorgan asked about 200 workers to move. A report by consultancy EY showed that financial services firms operating in the UK had already shifted about 7,500 employees to the EU since the UK voted to leave the bloc.
Meanwhile, bets on an economic recovery that lifts inflation are off in the US Treasury market based on election results, even as the presidency has yet to be declared.
The emerging specter of divided government — with Republicans preserving their Senate majority while Democrats control the House of Representatives and possibly the White House — prompted US interest-rate strategists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. to nix trade recommendations predicated on large-scale fiscal stimulus in the next few months.
“Without a Senate majority for Democrats, which at this point appears unlikely, fiscal stimulus is likely to be smaller,” Goldman Sachs strategists led by Praveen Korapaty said in a note. Assuming a package of less than $1 trillion, they recommend closing “several trade recommendations that hinged to varying degrees on a reflationary theme.”
The trades included a wager that the 10-year Treasury would cheapen relative to two-year notes and 30-year bonds. The 10-year yield could decline by another 10 to 15 basis points, the strategists say.
JPMorgan strategists for the same reason exited bets on a steeper yield curve from the seven-year note to the 30-year bond, and on higher market-implied inflation expectations via 10-year Treasury Inflation-Protected Securities.
“The likelihood of large-scale stimulus and better growth outcomes have been dampened,” strategists led by Jay Barry said in a note. “The upside on long-end yields and intermediate breakevens from current levels is limited.”
Similar activity has been underway in eurodollar options, where traders have restructured or abandoned bets on the Federal Reserve’s policy path. Wednesday’s eurodollar option volume exceeded a million contracts for the first time since June, and notable flows included profit-taking on a dovish hedge.