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27 June 2019

Bloomberg: Quadrillion-dollar London market bats away Brexit blues

London Stock Exchange Group Plc has defied Brexit gloom to retain the UK’s lead in the multi-trillion-dollar swaps business, realized a long-sought ambition to link up with China and nabbed some of the most coveted assets in its industry.

The reward is a soaring stock price, which reached a record this week. LSE shares have outpaced almost every rival in the past three years, including the firm’s former suitor and main European rival, Deutsche Boerse AG, which made a play to lure business from London after the 2016 U.K. vote to leave the European Union.

The 218-year-old exchange’s resilience at one of the City of London’s most difficult junctures in decades is the result of painstaking negotiations with the EU and some strategic acquisitions by its former Chief Executive Officer Xavier Rolet. With the uncertainty over Brexit undiminished, the big question for the bourse is whether David Schwimmer, the Goldman Sachs Group Inc. investment banker who took over the top job 11 months ago, can sustain his predecessor’s legacy.

“Some smart bets by Xavier mean LSE has been reaping the rewards,” said Alasdair Haynes, chief executive officer at Aquis Exchange Plc, a rival trading venue. “The new CEO is in a hugely privileged position -- his performance will ultimately be judged by the share price in three years’ time.”

Schwimmer inherited a winner. The LSE’s role as middleman in complex trades such as interest-rate swaps got a major boost from rules after the financial crisis requiring more derivatives to pass through clearinghouses such as its LCH unit.

Lobbying Europe

Executives worked to protect the quadrillion-dollar business, lobbying Benoit Coeure and Mario Draghi of the European Central Bank last year to keep swaps in London even under a no-deal Brexit, according to people familiar with the matter.

Their efforts paid off, and the move by the European regulators in February to allow euro clearing on both sides of the English Channel under any Brexit scenario was positive for the stock, said Kyle Voigt, an analyst at Keefe Bruyette and Woods.

LSE has unique growth operations like its index and clearing businesses, Voigt said, “and there are not many assets in the exchange sector growing at double digits.” [...]

Full article on Bloomberg

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