LSE chief holds firm on controversial merger terms

Credit: Micha Theiner

Xavier Rolet, LSE chief executive

The UK exchange group said in an August 4 interim results statement that work was underway on obtaining regulatory consent for its tie-up with Germany’s national stock market operator, with both groups having received the backing of their shareholders in July.

The UK’s vote to leave the European Union, a choice made in a June 23 referendum, has cast doubt over the merger, with authorities scrutinising the exchanges’ plan to base their new holding company in London. BaFin, Germany’s financial regulator, has already voiced opposition to the plan for London to become the headquarters of the holding company.

On a results conference call with reporters, LSE chief executive Xavier Rolet stood by the terms of the deal, saying it was not an accident that London as a global financial centre was set to host the holding company.

“The deal is set, the legal framework is what it is, this is a carefully calibrated merger of equals designed to create a world leader across geographies, across capabilities,” he said, adding that the terms of the deal had been approved by shareholders on both sides and were not subject to change.

In the first half of 2016, both revenues and operating profits, excluding one-off costs, amortisation and impairment costs, climbed 9%, with profits hitting £333.3 million and revenues from continuing operations rising to £721.9 million. The figure was slightly above analysts’ consensus estimates of £705.7 million.

Rolet said in a statement: “The group has delivered another good financial performance, with growth across all of our core business areas.”

The revenue rise was underpinned by a 12% growth in revenues at the information services division – which houses businesses including FTSE Russell and is the LSE’s biggest revenue generator – and the majority-owned LCH.Clearnet post-trade unit.

Information services revenues totaled £285.9 million thanks to 13% growth at FTSE Russell and higher revenues elsewhere in the unit, while revenues from LCH totaled £167.1 million, the LSE said, adding that the result over the first half came after further “good progress” in expanding the business’s over-the-counter services and was driven by a “good performance” at SwapClear as well as credit-default swap and FX clearing.

In the capital markets division, “strong results in equities and listed derivatives trading” amid volatile market conditions pushed revenues up 7% year on year, although the market uncertainty led to a slight decline in primary market issuance activity, the LSE said. Secondary market revenues rose 11%.

The strong underlying performance came in a busy six months for the LSE, with milestones during the period including LCH receiving recognition as a clearing house in Singapore for its SwapClear, ForexClear and its EnClear freight units, the launch of the LCH Spider rates portfolio margining service in June, the introduction of intraday auctions on SETS, and work on the development of the CurveGlobal derivatives engine, which is slated for launch by the end of September.

Factoring in merger-related expenses, net profits from continuing operations at the LSE slipped from £130.8 million in the first half of 2015 to £114.5 million.

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