Day of long knives for LSE
Only Mark Carney and the Bank of England come out of the boardroom brawl at the london Stock Exchange with credit. The Bank has been keeping a close eye on the lSE ever since the disastrous merger with Deutsche Boerse was unveiled a year ago.
Anything which threatened stability at the lSE and posed a systemic risk had to be on the Old lady’s radar.
In particular the Bank has been concerned about the lCH Clearnet offshoot which handles the clearing of 90pc of Europe’s derivative contracts, including the interest rates swap trade.
In the same way as the Bank requires the commercial banks to hold a capital cushion, so it has rules governing clearing.
The present requirement is that clearing houses hold enough resources to cover the losses of the two biggest players on the market should their trades go wrong.
The failed merger of lSE with Deutsche Boerse potentially could have posed new questions. On-off plans to merge clearing operations and how they would be policed post-merger was one critical issue.
Another surrounded the status of Carsten Kengeter the anointed chief executive of the merged market.
Once Kengeter became bogged down with insider trading allegations it was unlikely that he would have been acceptable as chief executive of a merged exchange, which would have needed approval from the Bank and the Financial Conduct Authority.
All that is now academic. Kengeter is busy clearing his name rather than trades. An unhappy lSE chief executive Xavier Rolet is clearing his desk, comforted by an obscene £13m pay-off.
This is a large sum by any standards, especially for a boss who lost the confidence of his board and defiantly declared he won’t be returning to the exchange ‘under any circumstances’. The respective chairmen who hatched the deal, Deutsche Boerse’s Joachim Faber and lSE’s Donald Brydon (both former insurance executives), are also running down the clock and on their way out.
Brydon is hanging on until a permanent chief executive is found, but the 2019 AGM is a ridiculously long time away.
Activist shareholder Sir Christopher Hohn, of The Children’s Investment Fund, may have been defeated in his quest to give Rolet a new lease of life, and lost money on the value of his holding, but he did everyone a favour by shaking the tree.
That is more than can be said about the other nodding dog lSE shareholders, including the Qatar Investment Authority and Black Rock, which approved the deal with Deutsche Boerse with scarcely a whimper of dissent.
The Brydon claim that the shareholders in london and Frankfurt were more or less the same proved not to be the case.
Meanwhile, the dozen major investment banks which scrambled for a share of the vast fees on offer demonstrated how their own interests trump those of investors and the greater public good.
The lSE will bounce back but the battering could not come at a worse moment, as the City seeks to steady the Brexit boat and braces for Jeremy’s Corbyn threat to freemarket capitalism.
Smoking zone
THERE is no such thing as a painless administration. Someone always gets hurt in the rush for advantage.
The failure of convenience store supplier Palmer & Harvey has seen the bigger players, Tesco and the Co-operative, cashing in on the opportunity. The Co-op is swooping in on the Costcutter supply contract, winning 2,200 new outlets.
It is on a roll, having muscled in on the 3,200-strong nisa chain for £143m just a fortnight ago. Members will hope that, with its big expansion into neighbourhood stores, the Co-op isn’t showing too much ambition following past mistakes.
Some of the 2,500 staff discarded by the administrators PwC, many of them van drivers, will, no doubt, be quickly reemployed while disrupters such as Amazon are on the march. But there will be victims, such as small providers of services to Palmer & Harvey with large unpaid invoices.
There will also be serious concern for the 2,500 members of a defined salary pension scheme which has an £80m estimated deficit. A rescue by the Pension Protection Fund would see benefits cuts.
Perhaps Imperial Group and Japan Tobacco, two big and rich users of Palmer & Harvey services should be invited to make up the shortfall. Don’t hold your breath.