Italy’s crisis brings unexpected benefits

THE LSE seems an unlikely beneficiary from Italy’s growing debt crisis. Yet its latest results showed one part of its business has gained hugely from Italy’s growing sovereign debt crisis.

The revenue in question is treasury income from the LSE’s central counterparty (CCP) clearing service, part of its Italian clearing business Cassa di Compensazione e Garanzia.

CCP treasury income soared 337 per cent in the quarter year-on-year, its fifth consecutive quarter of revenue growth. Over the past year its revenues have tripled. It was the firepower behind the LSE’s 58 per cent jump in its headline post-trade services income.

So how is Italy’s indebtedness causing this? More than half of the LSE’s clearing revenue comes from Italian banks and the business also guarantees interbank transactions by Italian banks.

That business is seeing surging demand as the banks grow increasingly worried their peers’ huge sovereign debt holdings.

Thanks to their high exposure to government debt – now viewed as a toxic commodity – Italian banks no longer trust each another to lend to, and appetite for interbank lending between them has dried up.

Instead, they are insisting on using a clearing house to act as counterparty between them, which is fuelling a meteoric rise in CCP treasury income – the interest generated on the cash and securities held in clearing.

The exchange has said the environment for CCP revenues remains positive. Assuming the Eurozone’s leaders continue to hesitate, the LSE looks sure to benefit further.