London Stock Exchange gets boost from weaker pound

The slide in the value of the pound helped fuel a surge in third-quarter earnings at the London Stock Exchange (LSE), which is looking to lock down its £21 billion merger with Deutsche Börse.

The LSE is confident of gaining regulatory approval for the merger with its German rival. Picture: Sang Tan/AP
The LSE is confident of gaining regulatory approval for the merger with its German rival. Picture: Sang Tan/AP

The exchange operator, which agreed to a tie-up with its German rival in March, reported a 19 per cent rise in income to £414.6 million during the three months to the end of September, beating the consensus forecast of £397.2m. Stripping out the effects of currency movements, revenues were 9 per cent higher.

LSE reports in sterling, but earns much of its income in other major currencies, and therefore gained from the pound’s depreciation since the Brexit vote on 23 June.

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Chief executive Xavier Rolet said the exchange is confident of assuaging regulatory concerns about the Deutsche Börse deal, which has come under the spotlight of the European Commission (EC).

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The EC has highlighted the potential threat to competition in several areas of financial markets, including clearing, derivatives trading, short-term financing and exchange traded funds.

To help placate the European watchdog, the LSE has said it is prepared to offload the Paris-based arm of its LCH clearing business.

Total income from LCH surged by 29 per cent to £114.9m during the third quarter, though the French contribution was not disclosed.

“We remain focused on achieving the necessary regulatory approvals to complete the merger with Deutsche Börse, creating a global markets infrastructure group, which we believe will generate significant value and benefits for customers and shareholders,” Rolet said.

Analysts at Credit Suisse give the deal just a 50 per cent chance of closing, but added that LSE still has a good business even if the merger does not go through.

The two exchanges argue that the deal will be a boon for clearing customers who could reduce the total amount they pay to LCH in London and Deutsche Börse’s clearing house, Eurex.

LSE’s capital markets division – which makes money from fees paid by companies listing on its markets, and the trading of stocks and bonds – posted a 16 per cent rise in third-quarter revenue to £89.6m. The third-quarter performance boosted LSE’s total income 14 per cent to £1.2bn for the nine months to end‑September. The LSE said the figures show that it is performing strongly despite a backdrop of economic uncertainty.