Wall Street cheers as NYSE-Deutsche Boerse deal stumbles
Hold the bratwurst.
Plans to combine the New York Stock Exchange and Germany’s Deutsche Boerse have hit a roadblock, and that has many on Wall Street breathing easier.
Duncan Niederauer, the head of NYSE Euronext Inc., acknowledged the growing speculation that European regulators will reject the proposed deal with the Frankfurt exchange.
Such a collapse would be a blow to executives at both exchanges who staked their future on creating the world’s biggest trading platform. Niederauer said in a message to NYSE employees Wednesday that the indications are “pretty disappointing,” but he promised to fight for the deal.
But from the rank-and-file traders on the NYSE’s iconic trading floor to top Wall Street analysts, the prospect of the deal being scuttled was greeted with some enthusiasm.
“There are a lot of former members of the stock exchange who have been quite vocal about their opposition to the deal from the very beginning,” said Ted Weisberg, who trades on the exchange for Seaport Securities.
There has been heavy criticism since the deal was unveiled in February that it would create a monopoly because of its size. In the U.S., politicians and business leaders alike were unsettled at the prospect of the NYSE essentially being controlled from Germany.
The deal can still be approved in a European Commission vote, expected to come in early February. But commission staff members have reportedly said the proposed new company would control too much of the derivatives trading market, the most lucrative and fastest-growing business in the exchange world.
Over the last year, several mergers between exchanges around the world have been rejected by regulators and politicians. They were seen as bringing in a new era of cross-border trading powerhouses but were highly scrutinized in the aftermath of the 2008 financial crisis.
“A lot of people thought this deal was doable,” said Jillian Miller, an analyst at BMO Capital Markets. “It’s a unique regulatory environment we’re in where regulators see financial services firms as bad guys.”
NYSE Euronext shares have risen more than 6% since the beginning of the year as word of the deal’s troubles began to circulate. The stock fell 4 cents, or 0.2%, to $27.74 on Wednesday.
When it was announced last year, the deal met resistance in New York from politicians and old-timers in the business who worried about the citadel of U.S. capitalism coming under foreign ownership. Deutsche Boerse would have taken a 60% stake in the new company through an exchange of stock that valued the Big Board at about $10billion at the time.
The new company was never given a name because of the political sensitivities. It was supposed to have joint headquarters in Frankfurt and New York. The NYSE already owns the Paris-based Euronext exchange.
The sale initially was viewed more positively by investors, who have worried about how the Big Board will compete in a new world of electronic trading that has rendered the physical trading floor of the exchange increasingly obsolete. The merger would have created opportunities to cut costs while allowing both exchanges to better compete in the lucrative derivatives-trading business.
Since last year, though, the growing European sovereign debt crisis has raised questions about whether it would be good for an American exchange to have more exposure to the volatile European markets.
In addition, French proposals to institute a European-wide financial transaction tax could further cut down on the German exchange’s business.
If the deal is rejected, analysts say, the Big Board will have to find another way to grow and compete against the electronic exchanges and private markets where an increasing proportion of all trading is done. This has led a number of analysts to warn investors against buying the stock.
“They are going to have to come up with some kind of compelling stand-alone strategy,” Miller said.
