10 min read

Exchange Invest Weekly 017

A Deal! A deal! My kingdom for a deal! Finally ladies and gentlemen we've got it: One bourse and another...Welcome to the Exchange Invest Weekly.


A Deal! A deal! My kingdom for a deal! Finally ladies and gentlemen we've got it: One bourse and another... doo doo doo doo doo doo doo doo doo doo doo doo doo doo. Welcome to the Exchange Invest Weekly.

Well it was the best of times and the worst of times. In M&A-land we finally got a deal ladies and gentlemen. After lots of merger speculation, precisely none of which actually talked about the deal in question: the Berlin Boerse, that August institution most recently run by Jörg Walte and Arthur Fisher, who are both now going to be in the process of retiring their posts. Indeed Arthur was going to be retiring anyway.

The Boerse Berlin is being taken over in a curious deal. Tradegate with which it has always had a certain degree of relationship which is owned 75% by the Deutsche Boerse itself. So therefore Deutsche Boerse which owns Tradegate is ultimately acquiring the Berlin stock exchange a venue in recent years of all manner of interesting high speed trading and other platform driven marketplace operations. Good luck to all parties concerned, particularly the incoming erstwhile Tradegate CEO who's going to run the Boerse Berlin Oliver Szabries.

Of course, in other news, there was another deal that was being much discussed this week. In fact, we started the week with lots of people saying Hong Kong will sweeten the deal for the London Stock Exchange when it wasn't to be. Tuesday morning came and news reached us from Hong Kong, that Hong Kong had decided for various reasons to withdraw from going hostile. Is it the end of the hostile merger? Who knows? Certainly, it was an interesting and fascinating deal while it lasted. And indeed it may yet rise again. Of course, the Telegraph in its role as continuity London Stock Exchange advocate in chief interviewed Stephen Schwartzman at the weekend, which was quite interesting. He was certainly very aggressively defending the Blackstone side of the Refinitiv deal and it looks as if well, at least if nothing else, come November, maybe December, there's going to be a vote on the LSE Refinitiv. Shareholders seem to be increasingly restive though as concerns rise. Just how capable is the London Stock Exchange of integrating the un-integratable: the good folks of formerly  Reuters, formerly Thompson, formerly Thomson Reuters, formerly Refinitiv, none of whose management teams managed to get together with the behemoth and actually managed to run it as a modern digital configuration. Wonder what's going to happen in the future? It's going to be very, very interesting. Certainly, Hong Kong have dropped their bid, they cannot re-bid for another six months. I can't help but feel though that the London Stock Exchange if it actually acquires Refinitiv is going to end up looking a little bit like Graf Spee during the Battle of the River Plate in September 1939. As you may recall, the Graf Spee was hit by a series of other smaller British cruisers. At that point, in the South Atlantic, it suffered some remarkable damage to some degree through bad luck. It crawled into the harbor of Montevideo, where it was promptly informed it could only stay for 72 hours under the rules of the Uruguayan state being neutral. Thus, actually, when it was given the choice, the Graf Spee was stricken. It couldn't effectively defend itself and indeed, ultimately, it was scuttled by the captain. Now, no one's going to suggest that the LSE is going to scuttle itself. But I do feel with all of the interesting things that are coming ahead, particularly the likely reconciliation in some grand Vienna settlement fashion of the business of Euroclear that we're going to see, a huge number of opportunities that the LSE are going to be missing because they're all going to be below decks, in the engine rooms, trying very hard to seal the leaks that are going to be coming from the difficulties of taking 5000 LSE staff and integrating them into near 20,000. Thomson Reuters - sorry-  Refinitiv staff. And ultimately, I think that's going to be a recipe for chaos. Hong Kong exchanges ultimately got their act together, they did a great deal of work. They've certainly put themselves on the map in a much, much bigger way.

Ultimately, the future outlook for the Hong Kong Exchange is fascinating. They have huge opportunity, huge optionality ahead. Who knows? Perhaps they can be involved in the ultimate carving out of Euroclear in a form of grand bargain. Certainly Hong Kong exchanges have done a great deal to raise their profile. And now we know there is a predator on the block and there's a predator on the block that does not necessarily need to seek antitrust protection for a lot of the deals that it could potentially do.

Of course, during the course of the week, the usual incompetent media quarters all told us that we should await bids from the Intercontinental exchange and others and as ever, nothing happened, Plus ca change in many ways in the M&A landscape, sanctimonious and rather arrogant articles coming out of London suggesting that the LSE is impossible to take over may yet prove to be folly. Look forward, I hope the Graf Spee analogy doesn't turn out to be true, but I'm very very worried. The LSE is not capable of integrating Refinitiv under its current management.

Elsewhere in results and deals, demutualisation of the stock exchange was high on the list in Sri Lanka during the course of this week. There were also interesting discussions from the former NASDAQ CEO Bob Greifeld. He was warning about the recent IPOs in the USA, those IPOs with an unclear path to profits. And of course, we can think of none other than particularly Wework: dramatically pulled in recent weeks. Those IPOs or these potential IPOs remind Bob Greifeld of the dotcom tech bubble. In other words of wisdom, Bob Greifeld noted there's a hidden cost to free stock market trading. Absolutely true. Of course, we've been discussing it before in this podcast, but good to at least hear an elder statesman as he now is, of the bourse parish Bob, coming together and giving his sensible outlook on these sorts of things.

Michael Spencer, he's placing a bet on the future of the tote. That's the cumulative betting system that allows everybody to put their money into a pool. And then the winner reaps the rewards for horse races across Britain. Michael is going to be a minority owner in a new deal that's trying to move that forward. And indeed, PDS! PDS are moving forward in the Philippines, the Philippines dealing system because it looks as if finally they're going to actually find themselves being taken over. As you remember, this has been a long running telenovela out of Manila. Well, for years now, it's been apparent that the Philippine Stock Exchange were trying to take it over but ultimately they have not succeeded by the look of it. Land bank are close to resting control of the bond exchange.

Brexit Brexit Brexit! Nothing much to report really. There was no deal, absolutely no deal. Nobody is ever going to speak to anybody. Again. We're all off in a huffy strop to our bedrooms and we're never ever going to speak to anybody. That was what, Tuesday? By the time we reached Thursday curiously enough in a wedding venue venue where Somebody called Colleen Rooney the tabloids tell us had her 21st birthday party. I think she's the wife of footballer, but I'm sorry, Exchange Invest doesn't actually know anything about soccer. Anyway, there was a meeting there, between Leo Varadkar, hopefully he enjoyed the ‘Tinsel-ly’ location that the Prime Minister of Britain had chosen to meet in the north of England. And they discussed Brexit, at which point in time, they said there was a glimmer of hope there was a possibility, there was an opportunity. Nobody actually waved hands around and bits and pieces of paper that said, ere we have ‘peace in our time’. But you get the sort of gist: it's the usual farago. It's going to be one of these free for alls where we're going to go to some sort of late night conference next week. And while Mr. Juncker is trying to enjoy his 734th glass of port or possibly another glass of excellent Bordeaux, they're going to try and stitch together some sort of deal. Stitch is the operative word because frankly, the basis upon which they're working at the moment is a stitch up for Britain. And I think it's still quite plausible, we could end up with no deal. However, it does look slightly more likely that there's going to be some sort of an attempt at making a deal during the course of the week because certainly British politics or at least the British Parliament is in some degree of affray where the parliament seems to be very very eager to go against the will of the people. So watch that one coming out... one of the things that's interesting is that in Germany and France they want a massive markets push. Why they couldn’t have a massive markets push years ago? Of course, it's anybody's question. But it seems that the hapless CMU - a great idea capital markets union, but once again, like most things when they see the light of day in the European Union bureaucracy, nobody can actually manage to execute it. Capital Markets Union after five years of de facto stasis is now going to be replaced by something called the rebranded savings and sustainable investment union. SSIU. I'm not sure I really like that acronym. CMU seemed a lot more catchy, but apparently - SSIU -  it's going to put markets at the center of the European Union, just like the European Union has summarily failed to do for the past 30 years. What are we going to get another 5000 pages I suspect of really, really rubbish legislation, It will probably be called MIFID three. And it can only be building upon the absolute drivel which was MIFD II. Tragic of course, because MIFID 1 itself was actually a very, very logical deal. The problem of course for all of this is and - given the fact that there's a huge amount of protectionism going on from within the European Union at the moment to try and effectively do as much damage as possible to the London financial center - is that in truth, London has emerged with its head held high. Despite all of the Brexit uncertainty, UK growth is actually 0.3% in GDP terms this week. So the UK is avoiding recent recession, despite the fact that most of the media are crowing about the risks of Brexit. And we're still crowing about the risks of a no deal Brexit whereas in fact, WTO rules will provide the UK with an elegant platform for growth in the near future. despite there being obviously some kerfuffles in the short term.

However, what undermines the whole European Union position is one very simple story that emerged this week. It transpires that Airbus, you know, Airbus, they make aircraft, and they make them across Europe. And they're a huge political football and the French government, the German government, the Italian government, and all other parties, all have a bit of a shareholding and trust interest and they try to manipulate what goes on in a fashion which will say if the Chinese Communist Party do that, of course, that's completely unfair. But the European Union seems to get away with day in day out. Anyway, Airbus they make great airlines at the end of the day, they have decided to set up an interesting new derivatives exchange, which is going to try and help airlines hedge away revenue risks, fabulous idea, I say free markets. It's wonderful. It's incredible. Here's the rub. Where have they set the company up? The United Kingdom of Great Britain and Northern Ireland. Where is the exchange going to be based? Apparently in London. #Despite Brexit. When a hugely political European entity such as Airbus actually realizes that the free market In London are free, that says a great deal about why the SS IU has a mountain to climb, whether it's called that or whether it's the CMU, ultimately Europe has huge problems.

In other problems I couldn't help but notice this week actually was somewhat sickly ironic. A German bank robber pleaded for mitigation after a 20 hour court ramble, he was actually cut short in the end by a judge who presumably had woken up to discover this man still raving in his court. And actually one of the reasons that this bank robber tried to justify his raids was because, well, you know, why shouldn't he try and stay from financial institutions because given the Cum-Ex scandal, the bankers are certainly trying to steal from we the people! Actually quite difficult to argue with that logic in certain senses.

Speaking of prison, ladies and gentlemen, two partners from an audit firm, they audited the books of NSEL. That hapless exchange which collapsed and financial crisis, what five, six years ago in India. They've been arrested and actually they're in jail, rather embarrassing us for the EY associate.

In people news the former securities regulator Liyiu Shu got a very light punishment after a proven to graft he admitted all the charges and ultimately he's got away with well paying various fines, a few slaps on the wrist, bit of a demotion but no life imprisonment for him. It's very interesting to see that he's managed to get away so lightly per se.

Euronext also announced this week their new three year plan for growth. It'll be interesting to see where that goes. Lots of focus of course on amongst other things, data and indeed also private markets. I suppose that ties in with the SS IU if the European Union can ever get that going.

Actually, ladies and gentlemen, I've got to share something with you. Right now outside this door, there is a taxi. It's waiting to take me to a thing called the Mdina Grand Prix. There's a slight problem there because, well, it's a bit of a conflict of interest, but I'm afraid I am the brand ambassador and the commentator for the Mdina Grand Prix. If you go to motors MT’s website on Facebook over the course of the weekend, you will be able to hear me commentating live on the racing, but I'm afraid at this juncture this is going to be a very brief review of the week in markets: The Exchange Invest Weekly from me, Patrick l Young because now I must away, put on my motor racing cap, put on my motor racing tie and prepare myself to commentate about two days of wonderful historic motor racing. This is me Patrick l Young. Thank you very much for listening to the Exchange Invest Weekly, I will be back Monday with the Exchange Invest Daily newsletter. If you're not a subscriber, only $200 a year keeps you on the inside track. Thanks for listening. Have a great week in markets.