LSE confirms in exclusive talks with LCH.clearnet (Wall Street Journal)

By | September 28, 2011

It seems that LCH.clearnet has been sale forever – well, at least for the last few years.  It seems we might finally be getting somewhere.  Although in my eyes the prize to be won is Swapclear, the LSE’s motives are different.  They want access to the equity and listed derivatives clearing that LCH would bring to the table.  Financial analysts have suggested the price tag set by LSE for LCH is too high – but as with most acquisition the buyer is paying for perceived future value as much as actual current profit potential.  This is where LCH is worth the price.

I’m also very intrigued about what they’ll do with Swapclear.  It doesn’t feel like swaps are in the cards for LSE – so why not sell it off at a premium price to one of many swap focused entities.  This issues has been debated at some length on TabbFORUM.

My comments to the WSJ:

Kevin McPartland, director of fixed-income Research at research firm Tabb Group, said that “clearing has so far not shown to be a hugely profitable business.”

“However, being able to offer a full suite of services is becoming more attractive to market participants, and I think that is a large part of why the LSE is willing to pay a premium price for LCH,” McPartland said.

“The premium price will sway the LCH owners to take the money and run,” he said.

Read the full story at WSJ.com

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