Fitch: Clearstream Ratings Likely Unaffected by Potential Deutsche Boerse-LSE Merger
OREANDA-NEWS. Clearstream Banking SA's ratings (AA/Stable/aa) would likely be unaffected by the potential merger between its parent, Deutsche Boerse Group (Deutsche Boerse), and London Stock Exchange Group (LSEG), Fitch Ratings says.
As the only international central securities depository (ICSD) in the combined group, we would expect Clearstream's franchise, governance and risk control framework to remain broadly unchanged following the potential merger. Fitch also anticipates that benefits from ring-fencing arrangements that protect Clearstream from potential issues in other parts of the group will continue to apply. While not our base case, Clearstream Banking's ratings could come under pressure should Deutsche Boerse's financial profile worsen markedly following the planned merger.
Deutsche Boerse and LSEG announced on Tuesday that the two stock exchange groups are in discussion about an all-shares merger under a new holding company with Deutsche Boerse shareholders holding 54.4% of shares in the combined group and LSE shareholders the remainder. Should a merger be announced, then the transaction would be subject to various approvals by regulatory and competition bodies. According to both Deutsche Boerse and LSEG, the "regulatory framework" applicable to all regulated entities would remain unchanged.
The merged group would be the second-largest stock exchange group globally by market capitalisation (around EUR25bn) and would become Europe's leading provider of financial market infrastructure services. Two previous planned mergers between the two stock exchanges in 2000 and 2004 failed, primarily because of shareholder opposition.
Deutsche Boerse and LSEG have overlapping business lines in both clearing and ancillary services such as market data services and technology. The realisation of cost synergies in these areas is in our view likely, should the merger materialise. Fitch expects that, in particular, the roles of the two clearing houses Eurex Clearing AG (Deutsche Boerse) and LCH.Clearnet (LSEG) in the combined group would have to be redefined.
In our opinion, Clearstream's business lines would be little affected. It would remain the only entity offering collateral management services in the merged group and LSEG's settlement and custody services are significantly smaller than Clearstream's. At end-January 2016, Clearstream had EUR13trn assets under custody.
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