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London Stock Exchange Net Profit Jumps 87%

The chief executive of the London Stock Exchange (LSE) sounded a rare note of optimism about European markets Wednesday, as the bourse reported an 87 percent rise in first-half net profit.

London Stock Exchange
Photo: Scott Barbour | Getty Images
London Stock Exchange

"While problems remain, the euro zone is starting to tackle its fundamental issues of over-reliance on debt and lack of competitiveness," Xavier Rolet told CNBC.

"The events of the last few days in Greece and Italy are very helpful signs for the future. I think the market is going to be slowly rising from here."

He added that he still thinks markets are currently "very difficult."

The exchange's net profit increased by 86.6 percent to 116.1 million pounds ($183.4 million) compared with the first half of last year but slightly lower than the 121.4 million pounds expected by analysts.

Income at the LSE rose by 20 percent to 386.5 million pounds ($610 million) in the six months to Sept.30, its fiscal first half. Its relatively new clearing business boosted income substantially, with interest drawn from loans to clients more than tripling to 54.3 million pounds.

There are worries that the LSE's ownership of Italy's Borsa Italiana and clearing house CC&G makes it exposed to the well-publicized troubles in Italy.

A downgrade by Goldman Sachs analysts Tuesday hit the LSE's share price. Analyst Chris Turner warned that earnings from CC&G, a major growth driver for the bourse, could be under threat if the deteriorating Italian market causes the cost of clearing trades to rise, making it cheaper for Italian banks to clear trades and loans through the European Central Bank.

"I can't say that I understand its premise or its conclusions," Rolet said of the report.

"It's based on a fairly shallow understanding of what a clearing business actually is. Clearing businesses provide a very safe alternative, effectively a guarantee to transaction, that's much valued by investors today."

Challenge to London Dominance

The LSE's dominance in the London market has been challenged since early 2008, when new European regulations on trading helped other trading platforms establish themselves.

Two of its biggest rivals, Chi-X Europe and BATS Europe, who control around 40 percent of FTSE 100 trading volume between them, are planning to merge.

Rolet said that the LSE's market share had remained fairly stable for the past 18 months, and pointed out that, following diversification, UK equity trading now makes up around 10 percent of its revenues.

"Our business has become significantly more diversified," he said.

"We are seeing very good volume growth in a number of businesses linked to increases in volatility, derivatives for example."

"There are concerns about resiliency in the euro zone, but our business is well diversified and we feel we are well positioned to provide strong growth," he added.

The LSE introduced a new faster trading platform, Millenium Exchange, earlier this year. It has also diversified into more emerging markets, with transaction deals recently signed in Mongolia, Johannesburg in South Africa and India.

After scrapping a planned merger with Canada's TMX in the summer after the deal failed to win over enough TMX shareholders, the LSE is in exclusive talks for a one billion euro ($1.35 billion) takeover of clearing house LCH.Clearnet.

Rolet declined to comment specifically on the transaction, but said that there is still a growing demand for clearing services.