Depository Trust to Buy LCH.Clearnet for $951 Million
By Nandini Sukumar
Oct. 22 (Bloomberg) -- Depository Trust and Clearing Corp. of the U.S. agreed to buy London's LCH.Clearnet Group Ltd. for 739 million euros ($951 million) to form the world's largest processor of trades in stocks, bonds, currencies and derivatives.
New York-based Depositary Trust, which settled more than $1.86 quadrillion in securities trades last year, will buy all of closely-held LCH.Clearnet, the companies said in an e-mailed statement today. Euroclear, LCH.Clearnet's largest shareholder, has agreed to support the merger ``in principle.''
LCH.Clearnet, owned by its members, has come under pressure as customers such as Intercontinental Exchange Inc., Europe's largest energy market, and NYSE Euronext's Liffe derivatives market, prepare to defect. The combination also comes as regulators seek a central clearing house for credit-default swaps after unprecedented volatility in markets worldwide.
``This will create a major global clearing organization and should be beneficial for longer-term trading costs,'' said Andrew Mitchell, an exchange analyst at Fox-Pitt Kelton Ltd. in London. ``The greater scale and diversity of two clearing organizations with extensive experience should further underpin this part of the global financial infrastructure.''
Roger Liddell, chief executive officer of LCH.Clearnet and a former head of global operations at Goldman Sachs Group Inc., will be CEO of the combined business. Donald F. Donahue, the chairman and CEO of Depository Trust, will be chairman.
Cost Savings
The merged organization expects about 50 million euros a year in savings over the ``next few years,'' said the 52-year-old Liddell in an interview. Regulators have to approve the merger, which is expected to close by the middle of 2009, said Liddell.
``Technology is at the heart of the deal,'' Liddell said.
LCH.Clearnet's owners will receive as much as 10 euros a share, paid partly in voting stock of Depository Trust and through a special dividend from LCH.Clearnet, the companies said. Euroclear has a 15.8 percent stake in the London-based company.
Depositary Trust, which clears share trades for the New York Stock Exchange and the Nasdaq Stock Market, is owned by its member banks, brokers and mutual funds. LCH.Clearnet is also owned mainly by its users, with 73 percent held by banks and brokers, 11 percent by exchanges and the remainder by Euroclear, Europe's largest trade settlement company.
Paperwork Crisis
Depository Trust was created to resolve a paperwork crisis that developed in the securities industry in the late 1960s and early 1970s when the New York Stock Exchange was handling as many as 12 million shares a day and brokers still exchanged paper certificates and checks for each trade.
LCH.Clearnet, Europe's largest company for clearing trades, was formed through the 2003 merger of Clearnet SA and London Clearing House Ltd. after pressure from their customers to combine to lower fees for cross-border trades.
Brokers pay fees for clearing, or post-trade processing services, which include verifying that a buyer has funds to execute a trade. Settlement is the execution of the exchange of money for securities. LCH.Clearnet also acts as a middleman to help provide anonymous trades. |
