[A-List] EU integration struggles: capital markets

["Michael Keaney" <michael.keaney@xxxxxx>]

London-Frankfurt merger talk is back

Mark Milner and Jill Treanor
Thursday January 16, 2003
The Guardian

Speculation that the London Stock Exchange and Deutsche Börse will resurrect
their merger plans - creating a dominant stock market across Europe -
gripped the markets yesterday. Shares in the LSE, which broke off talks with
its German arch-rival almost three years ago, jumped 6.4% on talk of an
imminent offer pitched at 430p a share.

With shares in Deutsche Börse down 4%, a spokesman for the Frankfurt
exchange would say only: "We never comment on speculation or contribute to
rumour." The London exchange also declined to comment.

City sources claimed there was also talk of an attempt to create a "mighty
triumvirate" which included the New York stock exchange, saying this was
also being used to explain the sharp rise in the LSE's share price.

"There is a lot being talked about in the City," one said.

Market sources believe that the German exchange is considering a move on its
London rival but caution against any hope of an imminent deal.

This failed to quell the gossip and yesterday's rumours of a link-up between
the LSE and Deutsche Börse refused to die down despite the ill-fated
attempts at a deal in the past.

Last time, the German financial industry was worried that trading in
blue-chip shares would migrate to London, while the City was concerned that
it would lose out on the then booming dotcom market.

Critics then argued that the scheme had not been worked out in sufficient
detail.

Sources also warned that Frankfurt is already preoccupied with plans to
expand its derivatives business in the US. It manages and co-owns the
world's largest derivatives business, Eurex, and is looking to launch a new
US derivatives exchange when its alliance with the Chicago Board of Trade is
wound up.

The CBOT has already said it will switch to the Liffe.Connect system, which
is owned by Deutsche Börse's other European rival, Euronext.

The LSE is the key to the development of Europe's tri-polar stock market
sector. An alliance with either Deutsche Börse or Euronext - which spans
Paris, Brussels, Amsterdam and Lisbon - would make the new group the most
powerful player in the time zone. There have also been talks about a
possible link with the US exchange Nasdaq, which is keen to establish a
leading presence in Europe.

London shows no sign of being stampeded into an early alliance with any of
its potential suitors.

"I guess it is possible but there is no urgency for them to do that," said
one London analyst who declined to be named. "They may have decided to do it
and I don't think there is anyone else in there who is forcing them to do
it."