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* Surge in Chinese investment in Germany attracts banks
* M&A bankers in key sectors shifting to Frankfurt
* Frankfurt aims to benefit from Brexit, city officials say
* City not planning big promotional campaign
By Anjuli Davies
FRANKFURT, Nov 7 (Reuters) - Global banks are quietlybuilding up their investment banking teams in Frankfurt as theGerman deals market hots up, boosting the city's chances ofbeing one of the financial centres to benefit most fromBritain's vote to leave the European Union.
A surge of Chinese investment in Europe's largest economyand an expected pick-up in merger activity across Germany'schemical, manufacturing and drugs industries have prompted banksto base more staff in Germany. This is contrary to the usualapproach of putting most of their deal-makers in London.
The trend puts Frankfurt in a good position to benefit fromany shift of banking activity out of London after the Brexitvote, already bolstered by playing host to the European CentralBank and the EU's second biggest capital market, city andbanking industry officials say.
"Germany is becoming a much more important market because itrepresents an increasing share of the global banking feewallet," Alexander Doll, CEO of Barclays Germany toldReuters.
When Britain leaves the EU it is widely expected thatfinancial firms based in London will lose their "passporting"rights - an EU system that lets them operate across the bloc butbe under the supervision of just one country's regulators.
That's prompting other financial centres like Paris, Dublinand Luxembourg to encourage banks, insurers and fund managers tobuild up outposts in their cities and obtain "passports" there.
Unlike other European countries, Germany has so farrefrained from 'rolling out the red carpet' to bankers byoffering big tax breaks or sending major government officials onbig promotion trips, relying instead on a more low-key approach.
FOOT IN THE ZONE
With London still expected to remain a major financialcentre in Europe after Brexit, Frankfurt is marketing itself asa city where firms could base some operations withoutencouraging a mass exodus.
"Banks are looking to keep the bulk of their operations inthe UK but some are hedging their bets on Germany," said AlexHoward-Keyes, a partner at the London-based internationalhead-hunting firm Alderbrooke.
"If they're going to have to have a foot on the ground inthe euro zone, Frankfurt seems to be the best place," he said,adding: "Frankfurt is a Brexit hedge plus it's in the biggesteconomy in Europe."
The head of investment banking for Deutsche Bank in Europe, Middle East and Africa (EMEA) Alasdair Warren toldReuters last month that he planned to base more bankers to coverthe industrial sector in Frankfurt from London.
Last month, BNP Paribas appointed two seniorbankers to run its EMEA teams focused on the chemicals and carsectors in Frankfurt, roles that had formerly been in Paris.
Several banks and head-hunters who Reuters spoke to inFrankfurt said while there is no major flight out of London tothe city, they are placing increased emphasis on the region.
One senior German banker, who declined to be named, toldReuters that in the coming months his firm plans to relocateseveral EMEA sector coverage teams to Frankfurt, which arecurrently based in London.
"We believe in the region and we believe in the market,"said the banker, speaking anonymously as the plans have not yetbeen officially announced. "This wasn't Brexit related, but Idon't think it harms us in that context." He declined to giveprecise details of the plans.
CHINESE INVESTMENT BIG LURE
One clear draw for international bankers is that Chineseinvestors have concluded deals worth more than $10 billion inGermany so far this year versus $3.7 billion in Britain, about40 times as much as in all of 2015, Thomson Reuters data shows.
Germany represents a much smaller market for investmentbanking than Britain, it takes about 10 percent of the EMEA feepool compared with the UK's 23 percent, but this is expected bybankers to pick up.
"Finally, Germany's M&A market has woken up," said a seniorFrankfurt-based banker, who spoke on condition of anonymity.
"Germany was lagging behind, but now some of its keyindustries like chemicals and pharmaceuticals are becoming moreactive. The environment is a good one right now."
Britain has said it will open formal talks to leave theEuropean Union by the end of March, but some banks have saidthey are already starting to look at relocating staff andoperations as early as next year in case of a so-called hardBrexit, or loss of single market access.
There are banks which have decided it makes good businesssense to make Frankfurt their preferred EU outpost and willstart moving more staff there, said Oliver Wagner at theAssociation of Foreign Banks in Germany, without giving specificexamples.
"None of the big ones will wait until the end ofnegotiations. There won't be thousands in the short term andFrankfurt can't cope with that, but these contingency scenariosare now drafted," Wagner added.
FRANKFURT PASSPORTING OUTPOST
Frankfurt has been pitching itself for years as analternative European financial capital. It is one of the onlycities in Germany to allow the building of high-rise officeblocks preferred by big banks.
London, however, is far bigger. For example, U.S. investmentbanks base 2.6 percent of their European employees in Germanycompared with 88 percent in Britain, according to data fromcountry-by-country reports analysed by think-tank Bruegel in2014.
Some U.S. investment bankers believe the big winner fromBrexit will be New York because some business currently carriedout in London would naturally revert to their home headquarters.
But most global banks have a Frankfurt base so that theycould obtain licenses to allow them to operate across the EUunder the bloc's passporting scheme.
Frankfurt is home to 159 foreign banks and about 62,300staff, statistics from Germany's central bank show.
About 30 banks in Germany currently use London to passportthrough Europe, of which half already have a subsidiary inFrankfurt, the Association of Foreign Banks in Germany says.
WOOING ASIA
Frankfurt is now quietly making its case behind closed doorsto firms across the world.
"Our approach is partnering with those who think aboutmoving business. There won't be massive marketing like in othercountries," Wagner said. "We do not see politicians from Berlintravelling to London to do any marketing for Frankfurt."
Promotional activity is being carried out by Frankfurtofficials. Tariq Al-Wazir, economics minister in Frankfurt'sstate of Hessen, recently made a trip to Japan and South Koreaspeaking to financial institutions and companies about thebenefits of Frankfurt in a post-Brexit world.
But one of the biggest challenges for Frankfurt officials isconvincing banks that their city can compete with London as agood place to live. Paris's newly launched campaign asks: "Whendid you last book a weekend in Frankfurt?"
(Additional reporting by John O'Donnell, editing by PeterMillership)
