The London Stock Exchange Group has been forced to admit it has not yet worked out potential capital savings to users from its proposed merger with Deutsche Börse – the second clarification related to the deal it has had to make this week.
On April 27, the LSE filed a regulatory news statement to clarify that potential capital savings to users resulting from the deal had not yet been clarified. The Financial Times reported on March 8 that the two exchanges were set to promise users capital savings of up to $7 billion from the merger.
Such savings would most likely arise from bringing together the two group’s clearing houses – the LSE-controlled LCH.Clearnet and the Frankfurt-based Eurex Clearing.
Eurex and LCH are among the leaders in the clearing of longer-dated futures and over-the-counter swaps, respectively. Bringing them together could enable customers to reduce the collateral they hold against correlated futures and swaps contracts through a process known as “portfolio margining”.
When the deal was formally announced, Carsten Kengeter, chief executive of Deutsche Börse and CEO-elect of the new group, said the exchanges planned to “develop a portfolio margining service between OTC and listed rate derivative clearing markets, providing significant customer benefits through margin relief and cost-of-capital savings”.
On a first-quarter earnings call on April 27, one analyst asked the LSE about the potential for regulatory capital relief from the merger, specifically referring to capital savings of $7 billion related to portfolio margining.
In response, David Warren, the LSE’s chief financial officer, said: “I think with respect to the portfolio margining and the number that you referenced, that is something that has been announced.”
However, in its statement on April 27, the LSE said: “These potential benefits have not been quantified at this stage.”
It is the second time the LSE has been forced to make clarifications in a week. On April 25, it issued a statement on recent comments made by its CEO Xavier Rolet in the press regarding Intercontinental Exchange, which has indicated it may make a rival bid for the UK exchange.
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