o tears should be shed for the likely failure of the London Stock Exchange’s £24bn plan to merge with Deutsche Börse. This deal, unveiled almost 12 months ago, cried out for a public interest study even before the UK voted to leave the European Union. Brexit then piled confusion upon uncertainty. If we don’t know what passporting and clearing arrangements will apply in future, how can anybody sensibly assess the long-term consequences of creating a bigger European mash-up of financial infrastructure?
The only surprise is that Brexit wasn’t the immediate cause of the deal’s death, though it may have contributed. The critical event was the last-minute intervention of Margrethe Vestager, the European commission competition commissioner. If you want to proceed, Vestager said, the LSE must sell MTS, the Italy-based electronic platform for trading government bonds.
Italian regulators hated the idea that their local assets could be carved up to facilitate a predominantly Anglo-German merger, thus the LSE couldn’t possibly comply. That the only credible buyer of MTS would have been Paris-based Euronext added another twist to the game of competing national interests.
An attempted land-grab by the French? Italian intransigence? Or was the German financial establishment, which has never been enamoured by the idea that a merged LSE/Deutsche would be housed under a UK holding company, stirring the pot? In the end, it doesn’t matter. Even if the commission could be persuaded (and, technically, it still can be), other obstacles remained. The German state of Hesse could have objected. And the insider trading investigation into a €4.5m (£3.8m) share purchase by Carsten Kengeter, the Deutsche chief executive who had been lined up to lead the merged business (and who denies the allegations), is an unresolved difficulty.
What matters now is that the LSE prospers in independent form. A merger with Deutsche would have been messy and awkward. But a takeover from the US, in the form of Intercontinental Exchange, owner of the New York Stock Exchange, would be much worse. The LSE would be relegated to junior partner, a grim prospect if a post-Brexit goal for the UK is to retain the City’s status as the financial capital of Europe.
There are reasons to be cheerful. First, the LSE has emerged stronger from its many non-mergers over the last 15 years. Second, the jostling of national egos may have made Downing Street appreciate that ownership matters when it comes to stock exchanges, clearing houses and bond trading platforms. Theresa May is preparing to unveil the government stance on foreign takeovers involving “critical infrastructure”. She should make it crystal clear that bids for the LSE are not welcome, at least until the post-Brexit financial landscape can be mapped.