The London Stock Exchange Group (LSEG) shareholders approved a merger with Deusche Börse. The ball now is in Frankfurt. Deutsche Börse shareholders will have until July 12 to decide whether to back the merger.
Before the Brexit vote, London was considered the logical location of the new entity, as the City has overcome New York to become the most important financial center in the world.
The management of both companies seems to be set in going ahead, although the valuation of the LSE is devalued along with the pound. The main rationale has always been to thwart losing business to Asian and US rivals. The business pitch of the merger is about creating the second biggest trading platform in the world, in a business that is increasingly more IT-based and global than dependent on physical presence in a specific city.
The merger or at least the London headquarters for the new entity is called into question following the Brexit vote. The German financial markets’ regulator (BaFin) opposes the new company being domiciled in London. Deutsche Börse shareholders will own 54.4% of the new holding company.
Some EU politicians have argued that Euro-clearing cannot possibly continue to be based in London, following a Brexit vote. Among them, Mr Hufeld, a member of the board of the Frankfurt-based European Central Bank (ECB), who expects the clearing of euro transactions to move to the common currency area within a couple of years.
The ECB tried in 2015 to move business inside the Eurozone, but the UK government fought back suggesting that a “location policy” would be discriminatory under the Single Market. Shortly, the ECB will be able to try again.
In any event, the final decision will not be made in Frankfurt. The European Commission and national authorities will need to scrutinize and approve the merger. The final approval will not take place before the first quarter of 2017. And it is certain that although there will likely be a British Commissioner in Brussels, he will no longer be holding the financial services portfolio following the resignation of Lord Hill. in Brussels, the City no longer has the same leverage.
(Reuters, AFP, Wall Stree Journal)