Financial Stocks: The End Of An American Icon?
It’s a sad time for Wall Street and America. Yesterday news broke the New York Stock Exchange is about to be acquired by Deutsche Börse AG.
This is a big blow to American pride.
And it’s yet another sign of the USA’s fading dominance of the financial world.
If the deal goes through, the 219-year old icon of American capitalism will be owned by the Germans. According to the Wall Street Journal, Deutsche Börse would own 60% of the new combined firm while NYSE shareholders would retain just 40%.
I have to believe hundreds of thousands of World War II veterans (many of which are buried in Europe) are turning over in their graves. I know my initial reaction was a mixture of shock and anger.
To me, selling the Big Board to Deutsche Börse would be like selling a national landmark to a foreign government. What’s next, are we going to auction off the Washington Monument or the Lincoln Memorial to the highest bidder?
Ok, maybe that’s a bit over the top. But I assure you the anger and sadness I feel is 100% genuine.
This proposed deal just goes to show that we truly have a global economy today. National boundaries are really nothing more than lines on a map.
In the immortal words of the Godfather, “It’s just business.”
And to a great extent that’s true.
Let’s face it, the NYSE is struggling to keep up with the purely electronic trading exchanges. In just the past six years, the NYSE has helplessly watched as their market share tumbled from 80% to just 23%.
The simple fact is this deal would put the NYSE back on top.
Deutsche Börse is one of the largest exchange organizations in the world. They own the Frankfurt Stock Exchange (Germany’s largest stock exchange) and the Xetra electronic trading platform. The firm also provides transaction clearing, settlement and custody, and market data services.
Bloomberg reports the combined company would be the largest exchange owner in the world. They would handle about $15 trillion worth of equities and a whopping 40% of the US options market.
Most importantly, the deal instantly provides the NYSE with what it needs most. More electronic trading and a much larger derivatives business (which carry profit margins as high as 55%).
In fact, the new entity would be the world’s largest derivatives exchange next to the Chicago Mercantile Exchange.
While the proposed deal is a bit hard to swallow for Wall Street old-timers, investors are clearly excited about it. Shares of NYSE Euronext (NYX) are up over 13% on the news.
So, is NYX a good buy at these levels?
If the deal ultimately goes through, I think this is a good time to buy for the long run. Of course if the deal fails, the shares will tumble back down to the previous level.
And this deal is no slam dunk.
It will certainly come under heavy scrutiny by European regulators over anti-trust concerns. The combined entity would instantly become the dominant exchange in Europe. And the immediate reaction of US politicians has been “cautious” and “low-key” according to the Wall Street Journal.
My gut feeling is the deal will go through.
It looks to me like the future of the NYSE depends on it. And while it’s hard to accept German ownership of an American icon, the NYSE falling into irrelevancy would be even worse.
Category: Stocks
