Better news may be coming out of Europe in 2013 compared with 2012, as economists predict a recovery in the region, but the European financial services sector is not without its problems. From the latest Libor rate fixing scandal at the UK’s Royal Bank of Scotland, to judiciary investigations into Italy’s Monte dei Paschi di Siena and fears of close-to-zero share valuations for Spain’s nationalised Bankia, this is not the kind of news that would encourage foreign investors to invest in the region’s financial centres.
Foreign direct investment (FDI) data shows that London was still the leading European financial centre last year. However, in 2012, there was a sharp decline in capital expenditure in the city's financial services sector and the number of FDI projects also decreased. For the 12 months to November 2012, London attracted little more than $1bn through 38 financial services projects. This was a 35% decline on the $1.61bn invested between 51 such projects in the same period of 2011.
Dublin and Paris, which were the respective second and third ranking European locations for financial services FDI in 2011, were replaced by Poland's Warsaw in second and Krakow in third, for 2012. The Polish cities attracted $279m and $270m of capital expenditure, respectively. A notable investment in the region came from US-based investment firm Brown Brothers Harriman, which established a new business centre in Krakow – its first European technological support centre in the region – which will create 500 new jobs.
Data on outbound FDI is only marginally better. FDI out of London amounted to $4.1bn in the 12 months to November 2012, a 25% decrease on the same period in 2011. Second and third ranking Paris and Zurich swapped places in 2012, with Paris-based companies investing $1.1bn compared to Zurich-based companies' $975m.
It is interesting to note that western Europe’s financial hubs retained the top positions for FDI outflows, while they lost ground in terms of inflows. London is a net exporter of FDI in the financial services sector, but in 2012 the percentage of FDI it attracted compared with the investments it generated decreased from 2011. The same was true for Paris.
