52 2GM Saturday August 1 2020 | the times
Business
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London Stock Exchange Group is
examining a sale of its Italian business
to secure regulatory approval in
Brussels for its $27 billion acquisition of
Refinitiv.
The FTSE 100 group said that it had
started “exploratory discussions” about
a disposal of MTS, its Italian bond trad-
ing business, as well as its Borsa Italiana
division, which includes the Milan
exchange. The Italian business is
expected to draw interest from rival
European exchange operators, with
Euronext, the owner of exchanges in
Paris and elsewhere, and Germany’s
Deutsche Börse likely to consider bids.
Nasdaq, the American group behind
exchanges in Copenhagen and Helsin-
ki, is also seen as a possible suitor.
The owner of the London exchange
is considering the sale to assuage
competition concerns at the European
Commission about the dominant posi-
Stock exchange owner mulls sell-off as price of Refinitiv deal
tion the British company would have in
European government bond trading
after its purchase of Refinitiv, the
financial information business. This is
because Refinitiv owns 54 per cent of
Tradeweb, a bond trading platform that
is a rival to Borsa Italiana’s MTS.
David Schwimmer, LSE chief execu-
tive, said the company was examining
“whether there are potential benefits”
to selling all of Borsa Italiana, which it
bought 13 years ago for €1.6 billion.
A merger of LSE Group with Deut-
sche Börse collapsed in 2017 after the
British company decided against
selling MTS to overcome Brussels’s op-
position to the deal.
Mr Schwimmer, 51, believes the
Refinitiv deal will be transformational
for LSE Group, which traces its roots
back to the 17th century. The British
financial services giant also owns the
FTSE and Russell equity indices and
LCH, the biggest derivatives clearing
house. The takeover of Refinitiv, whichis behind the Eikon news and data ter-
minals, was unveiled a year ago. At
present it is controlled by Thomson
Reuters, the media group, and Black-
stone, the US private equity house.
In June the European Commission
started an in-depth phase-two investi-
gation of the takeover. Mr Schwimmer
said that this was “not unusual and we
had factored this into our timeline”.
LSE Group expects the Refinitiv deal to
be completed either by the end of this
year or early in the next.
Analysts at Bank of America said:
“Whilst we’d prefer the LSE to keep all
its Italian assets, we think even selling
Borsa Italiana in total would be a small
price for the very substantial benefits of
the Refinitiv merger.”
LSE Group reported first-half results
that showed adjusted operating profits
rose 8 per cent to £575 million on reve-
nues up by 4 per cent to almost £1.1 bil-
lion. Its shares were up yesterday by
138p, or 1.65 per cent, at £84.84.Ben Martin Senior City Correspondent Return to the trading floor
The owner of the
London Stock Exchange
has cautiously set out
plans to bring some of
its workers back to the
office (Ben Martin
writes).
The company said
that while the majority
of employees would
continue working from
home for the rest of the
year, it expected up to
30 per cent to gradually
return to their desks “in
some locations where
public health,
government guidelines
and the local status of
the pandemic supports
this approach”.David Schwimmer,
the stock exchange’s
boss, said this included
the UK, where a phased
return of some staff is
likely to start next
month.
The group has almost
5,000 employees,
including just over 1,700
in Britain, who are
mainly in London.
“We’re prioritising the
health and safety of our
people, we’re not
forcing anyone to do
anything,” Mr
Schwimmer said.
There is a campaign
in the City of London to
shorten trading hoursto improve work-life
balance in financial
services, although
Euronext, the European
exchanges operator,
rejected the proposal
this week.
Mr Schwimmer said
that London Stock
Exchange Group was
considering it but
added that the
company had been
clear “that we think it
would be most sensible
if there was a concerted
action across Europe,
given that most market
participants in Europe
have a single desk for
European trading”.them, Citigroup and Standard Char-
tered,” the fund manager said. “If you
start breaking the group up, you
basically lose their purpose and their
source of competitive advantage.”
The big prize is as full participation as
possible in the plan by the Chinese
authorities to supercharge growth in
the Greater Bay Area, which surrounds
Hong Kong. The worry is that as HSBC
finds itself entangled in international
wranglings, China’s own banks will
grab more of the business. But that fear
may be overstated, given that HSBC
has held its dominant market share in
Hong Kong for decades.
HSBC is likely to follow other big
banks in reporting large expected loanin a bid to appease China and to try to
go below the public radar. It could also
help to address HSBC’s pressing need
to slash costs.
Joseph Dickerson, an analyst at Jef-
feries, said: “HSBC will need to address
the US retail banking business because
the unit likely explains a material part of
HSBC’s malfunctioning US network...
and is an obvious drag on profitability.”
Others believe a sale of the small
business would not make much differ-
ence and that HSBC has to remain
committed to America overall, because
it needs access to dollars to clear
transactions for Asian clients.
“The problem is that basically HSBC
is one of the three world trade banks: it’sOne consequence of HSBC’s painful
investigations and fines in the United
States eight years ago for allowing ter-
rorists and drug traffickers to launder
money through its international net-
work is that it has some of the best sys-
tems available for tracking customers.
HSBC is now under scrutiny over
whether it has been using that techno-
logy to look at ties its customers have to
the pro-democracy movement in Hong
Kong, the former British colony that
was handed back to China in 1997.
According to a Reuters report last
month, HSBC was among several fi-
nancial institutions submitting cus-
tomers to more background screening.
The bank did not comment, but some
shareholders have highlighted the
matter as a potential problem. It is just
another example of the difficulties
facing HSBC, which are exacerbated by
its status as a central cog in inter-
national trade and finance between
east and west.
HSBC was founded in Hong Kong
155 years ago and is heavily skewed to-
wards emerging markets. Noel Quinn,
who became HSBC’s permanent chief
executive this year, has set out a plan to
tilt the bank even further towards fast-
growing Asia but that strategy looks in-
creasingly problematic as tensions rise
between China and the US and Britain.
First and foremost, HSBC has to “sort
out its relationship with China in a way
that does not hurt its credibility inter-
nationally,” one longstanding institu-
tional investor said.
Yet that is proving very difficult to do.
The Chinese authorities have repeat-
edly put HSBC in the line of fire, over
Beijing’s security law in Hong Kong and
support for the new security law in
Hong Kong, which was imposed this
year. HSBC’s stance on the Hong Kong
law has also led to political criticism of
the bank in Britain.
The tensions over Huawei and Hong
Kong come amid the broader trade war
between Washington and Beijing,
which erupted in 2018 and has piled yet
further pressure on HSBC.
“They’re in a very difficult situa-
tion,” said a fund manager who owns
HSBC stock. “They were caught
between the politics of the US and
China and now they’re caught
between the politics of the US, China
and the UK.”
Some HSBC watchers hope that the
political crossfire will ease after the
US presidential election in November
and when noise over Ms Meng’s con-
tested extradition dies down, though
that may not be for many months.
However, others say HSBC has to
grasp this problem now if it wants to
deal with the poor performance of its
share price and instil confidence
among investors about the future.
One option is to shake up the
board. Of its 15 members, only three
are from Asia. That needs to change,
some investors believe, to reflect the
fact that HSBC makes half of its reve-
nues in the region, including 35 per cent
in Hong Kong.
Another is to consider floating a
minority stake in what is still HSBC’s
profit-generating powerhouse in Hong
Kong. That would be seen as a commit-
ment to the territory and greater China,
could please Hong Kong retail inves-
tors, who make up about 35 per cent of
the register, and could boost the bank’s
value, if the Asia part were to attract a
higher rating.
However, such a move could be
counter-productive, if it were to drag
down the value of HSBC’s European
and US operations, triggering an exis-
tential crisis about whether the entire
bank should be broken up.
Another option might be to sell
HSBC’s east coast retail bank in the US,in its fight with the US. This has mani-
fested itself in a series of hostile reports
about the bank’s role in the arrest of
Meng Wanzhou, finance chief of the
Chinese telecoms group Huawei, in
December 2018 at Vancouver airport
on a warrant from the US.
The US has accused her of bank
fraud for misleading HSBC over Hua-
wei’s relationship with a business in
Iran. Chinese state-backed media has
alleged that the bank “framed” Huawei,
which HSBC has denied.
HSBC, which only freed itself from
its US deferred prosecution agreement
for money laundering three years ago,
has also become a political football in
Washington, with Mike Pompeo, US
secretary of state, accusing the
London-listed bank of a “corporate
kowtow” after the lender voiceds
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iHSBC struggling to
find a path between
China and the West
Bank’s close ties to
Beijing are damaging
its global credibility,
Katherine Griffiths
and Ben Martin report
The bank’s backing of Hong Kong’s security law, and the row over its alleged role