Politics loom large in the world of European stock exchanges. Euronext’s next chairman Piero Novelli is qualified by his nationality, as much as his contacts and experience. The Italian state insisted the pan-European stock market operator put one of its nationals in the top job before agreeing to its takeover of Milan-based Borsa Italiana.
This is a good move for Mr Novelli. Since becoming co-president of the investment bank at Switzerland’s UBS in 2018, he has been seen as a safe pair of hands, rather than a leadership contender. He joins Euronext at what could be a pivotal point in its fortunes, thanks both to Brexit and the €4.3bn Borsa Italia acquisition.
Euronext, founded when the bourses of Paris, Amsterdam and Brussels joined forces in 2000, largely failed to live up to its early ambitions. But since its flotation in 2014 it has performed strongly, generating returns on equity averaging about 35 per cent.
The shares are up more than fourfold, priced at under 20 times forward earnings, a discount to its larger peers Deutsche Börse and the London Stock Exchange. That reflects exposure to cash equity trading — a low quality source of earnings. But that will fall with the Borsa Italiana deal. It will diversify its business mix and geographical footprint.
Brexit is putting more wind in Euronext’s sails. Amsterdam supplanted London last month as Europe’s main share trading hub. Brexit had already nixed the 2017 €29bn merger between the LSE and Deutsche Börse. That would have created a European market champion, leaving little room for Euronext.
Euronext’s stated ambition is to create the backbone for Capital Markets Union (CMU) in Europe. There are hurdles. Technical glitches disrupted several European stock exchanges last year, underlining the risk of one operator running many bourses. A more profound obstacle to CMU has been the divided interests of member states. Political factors will influence Mr Novelli’s success in his new role, as much as his eligibility for it.
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