March 1, 2019 / 7:28 AM / 5 months ago

London Stock Exchange to cut 250 jobs, drops margin target

LONDON (Reuters) - The new boss of the London Stock Exchange Group Plc announced a round of job cuts on Friday as the bourse prepares for Brexit after delivering annual results that met expectations.

People walk past the London Stock Exchange Group offices in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

Goldman Sachs veteran David Schwimmer, who took charge last August, said businesses, including those perceived to be most exposed to Britain’s impending exit from the European Union on March 29 such as clearing, continue to perform well, with no change in market position.

“We are very well prepared for whatever comes from a Brexit situation,” Schwimmer told reporters.

“We expect international growth opportunities to offset any market headwinds in 2019,” the American added.

The LSE’s pan-European share trading platform Turquoise has applied for a license to open a hub in Amsterdam to serve EU customers after Brexit, and Schwimmer said authorization from Dutch regulators was imminent.

But if Britain secures a transition deal with the EU, share trading of euro denominated stocks would remain in London, Schwimmer said.

The exchange said it would cut 250 staff in 2019 to generate 30 million pounds in annual savings, but that it would not meet its target of core earnings margin of about 55 percent in 2019 as it spends on the business.

LSE Chief Financial Officer David Warren said the margin target was “a bit stretched”.

Schwimmer said the cuts would come from across its operations and focus on cutting duplication.

“The margin guidance for 2019 always struck us as irrelevant, and we had nothing like this in our numbers, so we think jettisoning this is sensible,” Bank of America Merrill Lynch said in a note to clients.

The LSE said its adjusted operating profit rose 15 percent to 931 million pounds ($1.23 billion) in 2018 while total income rose 9 percent to 2.14 billion pounds.

Analysts had expected adjusted operating profit of 932 million pounds, with total income of 2.13 billion pounds according to company supplied estimates from 14 analysts.

UNHAPPY M&A HISTORY

Schwimmer’s predecessor Xavier Rolet left after a proposed merger with Deutsche Boerse was blocked by competition regulators.

Schwimmer signaled no rush to look for mega deals.

“We are very happy about the strategic positioning of the group. M&A will continue to be a tool in the toolkit. We are focused on finding things that make strategic sense,” he said.

Bank of America said Schwimmer was flagging “strategic continuity”.

Shares in LSE fell 1.3 percent in initial trading before recovering to move 2.8 percent higher at 4,637 pence by 0957 GMT.

LSE’s post trade services unit, which includes clearing, settlement and custody activities, reported a 13 percent rise in revenue from LCH, the clearing house.

LSE’s LCH dominates euro swaps clearing. Europe’s financial markets regulator has given UK-based derivatives clearing houses permission to continue serving EU clients in the event of a no-deal Brexit - a major boost to London’s battle to remain the central market for euro clearing.

Schwimmer said he had seen no discernible moves by customers from LCH to rivals such as Deutsche Boerse in Frankfurt.

The EU has given LCH’s London unit temporary authorization to continue serving customers in the bloc if there is no Brexit deal.

Schwimmer said it was “highly likely” this would lead to a permanent license, meaning the threat of forced relocation of euro clearing to the EU had now eased, a segment that accounts for 38 percent of LSE income. ($1 = 0.7545 pounds)

Noor Zainab Hussain contributed reporting from Bengaluru; Editing by Keith Weir

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