Once upon a time, the London Stock Exchange bosses had an urge to merge. More accurately, there has seldom been a moment when the LSE was not either trying to merge or fighting off unwanted advances from other exchanges. Ah, but this time it’s different. The tie-up with Deutsche Borse is that pantomime horse, a “merger of equals”.
As if to make the point, the LSE’s CEO Xavier Rolet is off, perhaps with a view to saving France’s political system, to let his oppo run the show, but from London, not Frankfurt. Merger of equals, see? That was in March. The Brexit referendum would make no difference and when the people failed to do as they were told, both sides signed a cheerful business-as-usual statement on May 24.
It is now obvious that business is anything but usual, after “the single most important decision the UK has taken in more than 40 years”. Seen from Brussels, the prospect of the vast markets in bond derivatives, as well as the currency, being run from outside the European Union is horrible to contemplate. So it’s fortunate that Margrethe Vestager, the scourge of big business, is on the case. Fresh from thumping Li Ka Shing and Apple’s Tim Cook, the competition commissioner must approve the merger for it to go ahead.
The exchanges have already offered to jettison some euro bits and pieces, but France’s finance minister is nervous for his country’s stock exchange. Apparently Holland, Belgium and Portugal still have them too. All face oblivion should the merger proceed.
The prize for LSE/Deutsche is the elimination of the need to post collateral twice for trades which involve both bourses. Since those two pools total E150bn, the claim of £450m a year in savings is plausible, although monopoly power may prevent much of that reaching the customers.
M. Rolet reckons the deal is still on track but Mrs Vestager is famously impervious to lobbying. Yet this is as much a political as a competition issue. As the deadline for Britain to trigger Article 50 draws closer, the thought of all the EU’s major financial markets being run by Perfidious Albion may be too much to bear. She is supposed to rule by February 13, but the odds on her sending a Valentine card to the big bourses are lengthening by the day.
No more gimmicks, please
Two more of George Osborne’s crowd-pleasing stunts bit the dust last eek. The retail offer of the rest of the state’s shares in Lloyds Banking was scrapped, as the price sagged under the weight of the Bank of England’s financial repression. Bank shares in today’s climate are gambles rather than investments, so it’s probably as well for the former chancellor that the offer never got further than his headline, since he would have been blamed for the punters’ losses.
Financial repression, in the shape of near-zero interest rates, also helped sink his idea of allowing pensioners to cash in their existing annuities. The earlier change, scrapping the requirement to buy an annuity from pension contributions, remains, and bringing in existing pensioners was somehow seen as “fair.”
Mr Osborne would rather we did not view these liberalisation moves as a way of raising revenue now at the expense of future taxpayers. However, cashing in annuities means jam today and no bread tomorrow, forcing the state to step in when the money’s all gone.
The underlying problem is that annuities simply don’t work at these silly interest rates, which imply that a pound in a decade hence is worth almost as much as a pound today. The resultant rates mean that even a decent capital sum produces a trivial income, reinforcing the suspicion that the insurance companies are stealing from their customers, as usual.
Mr Osborne’s strategic error was to set 55 as the minimum age for capital withdrawal. This is less than two-thirds through the adult life of those born after 1961. Few employees outside the public sector can hope to have accumulated enough of a pension by 55 to last them until death, so they might as well take the money as soon as they can. Next month we shall see whether his successor has learned from Mr Osborne’s blunders. A gimmick-free Autumn Statement would be a good start.
This is my FT column from Saturday (with apologies for late publication. Scafell Pike got in the way).