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Finance

Finance Friday 01.04.2016

Money Falling on Happy Businessman

Money Falling on Happy Businessman

By Nikola Kedhi

The London Stock Exchange and Deutsche Börse are about to merge. Newspapers, analysts and investors have been talking about this agreement for over a month now. Everybody is trying to assess what exactly the consequences of such a union will be, especially with the threat of Brexit looming around.

It is the third attempt of a merger between the two stock exchanges. With American and Asian competition becoming tougher, this is seen by many as the only way to remain competitive in the trading of stocks, bonds and other financial instruments. The seat will be in London, while a name is yet to be decided. This is considered a rare deal because it would be a “merger of equals”, as described by both parties. This will be reflected also in the board of directors, where the number of seats will be equal for both Deutsche and LSE. However, Deutsche’s shareholders will own 54.4%, as opposed to LSE’s 46.6%. The agreement reached is valued around $30 billion.

The news has divided market participants. There are those who welcome it and are looking forward to a union that will change the field for the better. It looks like banks will be among the main beneficiaries. According to an official of UniCredit’s German unit, having a large European player would benefit banks, since the current landscape is too fragmented. The CEO of Deutsche Bourse, Carsten Kengeter, says that market participants would experience considerable cost savings. Furthermore, both parties have downplayed any risk from Brexit. Also, there will be more prospects for growth enhancements and cross margining between listed and OTC derivatives clearing based on a report by the Financial Times.

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On the other side, there are people skeptical of such an agreement, who overlook the cost benefits and synergies while focusing more on the potential risks. European politicians have been following closely the negotiations between the two companies, while regulators are expected to give their approval. A lot worry about the implications this would have in case Britain leaves the EU. Some have even gone so far as to say that this is LSE’s failsafe in case of an exit from the Union. France has also raised concerns over this merger. The French Economy Minister said for Reuters that they are evaluating what this means for the Paris financial center.

Currently, the merger is far from done, since it has to pass the careful scrutiny of Brussels. Nevertheless, it will most likely occur, creating a clear market leader in Europe and causing a shakeup for the better in the financial sector.

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