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LSE Falls to Six-Month Low on Brexit Fears Amid Broader Slump

Viren Vaghela
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LSE Falls to Six-Month Low on Brexit Fears Amid Broader Slump

(Bloomberg) -- London Stock Exchange Group Plc fell to its lowest level in over six months on concerns that the company will lose revenue from banks moving business to the European Union after Brexit.

Though it later pared losses somewhat, the stock is now down over 10 percent in the last week, underperforming the U.K. FTSE 100 index amid a broad sell-off. The FTSE is down less than 6 percent in the same period. Prior to this month, LSE Group had been one of the FTSE’s best performers in 2018.

LSE’s LCH unit is the biggest clearing house in the world for interest rate swaps, a type of derivative that helps companies hedge interest rate risk.

If banks like JPMorgan Chase & Co. and Deutsche Bank AG shift a significant portion of their business to Eurex to still have access to clearing services after Brexit, LSE could lose as much as 50 million pounds ($66 million) a year in revenue, according to Commerzbank analyst Christoph Blieffert.

“Two or three weeks ago nobody believed Eurex had a chance to take a share of euro-denominated swap market and this has now changed,” said Blieffert.

Blieffert gives the only sell-equivalent rating of LSE among analysts surveyed by Bloomberg.

While the share drop is part of a broader market slump, the change in sentiment toward the stock comes only days after the Bank of England warned about the lack of clarity over the legal status, post-Brexit, of trillions of dollars’ worth of financial contracts signed under U.K. law. It’s also less than three weeks since billionaire Chris Hohn’s TCI Fund Management sold a 3.36 percent stake in the company.

LCH has informed clients that they have to give notice by December if they wish to move their euro-denominated swaps to rivals such as the Eurex clearing house of Deutsche Boerse AG before March 29, when the U.K. is due to leave the EU.

By 10 a.m. in London, the stock was down 3.0 percent at 4034 pence.

To contact the reporter on this story: Viren Vaghela in London at vvaghela1@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Geoffrey Smith, Christian Baumgaertel

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