Fixing Britain’s banks is, of course, a priority. But the danger has always been that in doing so, we damage the wider financial services industry, which is one of our world beaters.
Not many UK industries enjoy a £17.6bn trade surplus with the European Union, for instance.
The importance of the UK, and London specifically, to global finance was highlighted by Thursday’s $8.2bn (£5bn) acquisition of NYSE Euronext (NYSE: NYX - news) , the company that operates the New York Stock Exchange, by rival IntercontinentalExchange (ICE).
The main rationale for this deal is for ICE to gain control of Liffe what used to be known as the London International Financial Futures and Options Exchange.
Derivatives exchanges have grown, and proved more profitable, while traditional stock market operations, known as cash equities and represented by the likes of the NYSE Big Board, have struggled. They have seen shrinking market share in the face of growing competition from smaller, low-cost rivals and profitability has been hit as a result because fees have come under pressure.
Liffe has grown to account for about 40pc of NYSE Euronext’s profits and it is a fair bet that ICE, in joining it with its own extensive derivatives operations, will want to invest in its new London assets. Good for jobs in the UK and good for tax revenues.
ICE will also inherit a rag bag of smaller European cash equities exchanges such as Paris, Amsterdam and Lisbon. Not surprisingly it plans to offload this business through a separate flotation, although the assets might well get snapped up by a trade buyer before then.
One obvious potential buyer for these non-core assets would be the London Stock Exchange (LSE) itself. Although not the sexiest deal it will ever do, it could at least drive some cost savings and efficiencies out of such a deal to improve profitability. That said, the LSE buying the Paris bourse could have obvious political ramifications, not to mention competition issues that the European Commission would want to examine.
The irony of the LSE possibly buying the discarded rump of the ICE/NYSE Euronext merger, rather than the more exciting Liffe business, cannot be ignored. For it was back in 2001 that the LSE allowed itself to be outbid for Liffe by NYSE in what remains one of the great lost opportunities to really consolidate two elements of London’s financial might under one roof. Whether the overall strength of the City of London (LSE: CIN.L - news) was really dented by that miss is debatable, given how Liffe has performed anyway under its US owners. But certainly LSE’s shareholders have probably lost out from the episode.
Overall, the process of consolidation in financial exchanges continues subject to regulatory approval which ICE is not to win despite its confidence. Assuming it does, then a new power will be created. The LSE can’t ignore it and the pressure it’s under already will ratchet a little higher.
= BT’s 4G move could pay off for the Treasury =
BT (LSE: BT-A.L - news) is an intriguing entrant into the auction for 4G spectrum. While it was forced to demerge its mobile phone business in 2001, to create what became O2, it’s not about to re-enter the mobile market.
Instead, BT is looking to buy spectrum to boost its mobile internet services. But its presence in the bidding will certainly exert upward pressure on prices, which can only be good for a hard-pressed Treasury trying to raise every last penny it can from the asset sale.