Comment: New man at London takes stock for a brighter 2010

Published on Wednesday 25 November 2009 20:13

NEW London Stock Exchange chief executive Xavier Rolet does not have his problems to seek. The notable fall in revenues and profits at the exchange is partly a result of new, cheaper rivals with electronic share-trading platforms eating the LSE's market share. Chi-X, Bats, to a lesser extent Turquoise...

It must be sobering for Rolet that it is estimated the London exchange's monthly market share in the UK has slid to less than 60 per cent from 96 per cent in January 2008. In some big-capitalisation stocks, its share is believed to be below 50 per cent.

The new man is putting more than a brave face on it. The LSE has borne down strongly on costs this year, with 12 per cent of the workforce gone.

The acquisition of MillenniumIT to sharpen up the LSE's technology offering looks positive, as does the exchange's ongoing talks with one of its new rivals, Turquoise, to form a joint venture.

And it looks like more than just wishful thinking on Rolet's part that 2010 could see decent flotation activity on the LSE, as well as secondary fund-raisings.

Meanwhile, the exchange's post-trade and information and technology divisions look solid-citizen performers despite what is far from the most conducive backdrop for share-trading exchanges generally. If Rolet manages to cut dealing charges again it should help, as will a hoped-for deal with post-trade clearing house Euroclear to allow LSE users to be charged for net rather than gross trades.

The latter sounds technical, but would again help the LSE ward off the ravenous rivals trying to eat its lunch.

Stock exchanges are not the only sector having to deal with structural as well as cyclical challenges simultaneously. Rolet believes he can do so.

Overdraft ruling was right

A MAJOR legal decision in favour of the banking industry? How does that work, then? Must be a mistake. Can't Brussels do something?

Such is the occasionally unthinking opprobrium that banks are held in currently that the Supreme Court's ruling on overdraft charges in favour of the industry is something of a shock.

The court allowed an appeal by all the major banks and the Nationwide Building Society over earlier rulings that charges for unauthorised overdrafts come under "unfair contract" and are therefore subject to the writ of the Office of Fair Trading.

Instead the judges accepted the banks' argument that free banking on current accounts was only made possible by charging customers who went into unarranged overdrafts. Banks are virtually statutorily banned from doing "cockahoop" these days.

But bankers would be less than human if, after adjusting their collective facial expression to one of relieved-but-not-truimphalist, they were not very happy about this decision, indeed.

Not least, the banks still have balance sheets to repair. If the landmark decision had gone against them they would be facing major refund claims from millions of consumers who have been waiting to get their bank charges back.

It is estimated that if the banks lost the test case it would have cost them more than 2.6 billion a year in lost revenue, and could have led to them having to make refunds of up to 1bn to customers.

Before refund claims were frozen, the banks had already forked out 559 million to customers complaining about "rip-off" overdraft charges.

It is understandable that customers are aggrieved at being battered with a 35 charge when a single cheque for a relatively small amount has bounced them temporarily into the red. There is a strong sense of layman's injustice whatever the contractual niceties.

But because banks have done a lot wrong in recent years does not mean they have done everything wrong. Incompetence in subprime Iowa does not necessarily mean a rip-off in the British high street.

As the judges said, the customers agreed to the charges when they took out an account with the banks. Customers have responsibilities as well.

There was always more nuance on this hot issue than was sometimes aired. Free banking is important, but it has to be paid for.

The Supreme Court's resistance to being swept along on a tide of public dislike of cloven-footed bankers is balanced and welcome.