Deutsche Börse-LSE tie-up hits opposition
Opposition is growing in Germany to Deutsche Börse’s planned $20bn merger with London Stock Exchange, amid mounting concern about the consequences for the merged entity if Britain votes to leave the European Union.
“It’s a problem if the headquarters of the holding company will be outside the eurozone and, if Brexit happens, outside the EU,” said Ulrich Caspar, a member of parliament in the German state of Hesse, where Frankfurt is located. “The terms are detrimental to the development of Frankfurt as a financial centre.”
The deal, unveiled in February, would create one of the world’s largest exchange operators in terms of total income, and one of the biggest for equities listings. It would also risk manage more derivatives trades than any other such entity in the world.
Deutsche Börse’s shareholders would own 54.4 per cent of the combined group, and LSE investors the remainder. The merged company would be headed by Deutsche Börse’s chief executive Carsten Kengeter, but be based in London.
Many in Germany want it to be headquartered in Frankfurt instead, to reflect Deutsche Börse’s larger market capitalisation, as well as the city’s status as home to the European Central Bank and centre of the European single currency’s settlement, clearing and payments.
There is also a fear in Germany that while London is currently one of the world’s big financial hubs, it could forfeit that status if, as a result of the June referendum, Britain quits the EU, leaving the merged company stranded.
“The danger for Frankfurt . . . is that the headquarters for both stock exchanges will no longer be in an international financial centre, but in a city whose significance worldwide will be declining,” said Clemens Reif, another Hesse lawmaker. He, like Mr Caspar, is a member of Germany’s governing Christian Democrats, which are also the ruling party in Hesse.
However, some big institutional investors based in London disagree. They say that London will remain one of the world’s leading financial centres regardless of whether the UK remains in or outside the EU.
One portfolio manager at a big UK institution said: “Frankfurt is not going to challenge London as a financial hub. The world’s biggest banks, law firms, accountants and trading houses are in London. The company would be better off headquartered in London. The Brexit vote is an irrelevance.”
The issue of Frankfurt’s status could prove decisive for regional authorities who will have a big say over whether the deal goes through. Deutsche Börse’s is overseen by the state of Hesse’s stock exchange regulator, which will assess the tie-up.
Hesse’s economics ministry said in February that the regulator could block the proposed merger if it impaired Frankfurt’s ability to operate a stock exchange and further develop the business.
Last month, Hesse’s prime minister, Volker Bouffier, said the regulator needed to establish whether Hesse could continue to supervise the stock exchange if the holding company were headquartered in London, adding that it would be “desirable” for the group to be based in Frankfurt.
Mr Kengeter has sought to reassure the German authorities, saying last month that Deutsche Börse’s was in “very detailed” discussions with the Hesse government, and the two sides were “agreed that we want to promote Frankfurt as a financial centre”.