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Politics & Economics

STRUCTURAL DEVELOPMENTS IN THE BANKING CENTRE LUXEMBOURG

by Ernst Wilhelm Contzen

The well-known grand duchy Luxembourg, the 8th largest financial centre and the worldwide no.2 place for investment funds, owes its pre-eminent position to competitive advantages such as long-term political planning within a stable political structure, cooperative and pragmatic authorities, healthy fiscal and judicial frameworks, an excellent infrastructure, a multilingual population as well as the country’s favourable location in ‘the heart of Europe’.

The EU directive on the taxation of interest incomes guarantees banking secrecy in Luxembourg, beyond 2010. This has come in place due to the strong efforts of the grand duchy‘s government. This directive will further strengthen Luxembourg’s position as an important financial centre. As a result of its swift and pragmatic implementation of EU directives, Luxembourg is looked upon as a „first-mover“ within the EU. This guarantees competitive advantages to financial institutes. A clear example of this is a favourable legislation for securitisation and holding companies, pension funds and the EU directive for investment funds UCITS III. Deutsche Bank Luxembourg, was founded as its first overseas branch after the WW II in 1970, and is based on the three pillars: International Loans, Private Wealth Management, and Treasury & Global Markets. With its 330 employees, an annual surplus of € 141 Mio in 2004, Deutsche Bank Luxembourg is one of the key players of this important financial centre. Luxembourg’s structures as a banking metropolis have over the course of years, fundamentally changed. In 1970 37 financial institutions, of which only three were German had a presence in Luxembourg. By the mid 1990s, this figure had risen to 222. As a result of the strong consolidation which has been taking place since the late 90s the current figure stands at 162, of which 46 are branches of German banks.

Consolidation of foreign parent companies resulted in mergers and closures of “Luxembourg outposts”. With only three banks being majoritycontrolled by investors from Luxembourg, the continuing process of consolidation in the international banking sector will in particular affect the further development of Luxembourg as a banking place. The formation of large, global, or at least supra-national acting financial conglomerates back in the 1990s is now leading to the integration of foreign affiliates into corporate structures and strategy. These changes do affect Luxembourg in the way that the traditional concept of Luxemburg as being a place for universal banks now is replaced with branches, which more and more are to focus on niche activities assigned by their parent companies, and they are thus transformed into highly specialised financial service providers. This also applies to Deutsche Bank Luxembourg, which now focuses not only on International Loans, Private Wealth Management, and Treasury & Global Markets, but also takes on treasury tasks and works as a credit competence and accounting centre for the Deutsche Bank Group.

These changes have led to the creation of highly specialised jobs with invaluable know-how and a sophisticated infrastructure, which give the bank and the financial centre as such a competitive advantage. Taking advantage of scale effects, the same also applies to Private Wealth Management, which now also covers the area Asset Allocation. Customer consultants are by this able to focus on their customers‘ individual needs and have the opportunity of taking advantages of new innovative investment products and to communicate in their customers‘ native language.

Deutsche Bank Luxembourg has managed the synthesis of being both internal service provider and experienced customer consultant. Profiting from lean and efficient structures as well as from the advantages gained by being present in Luxemburg, Deutsche Bank Luxembourg has built a solid basis for a thriving future.