London Stock Exchange

Goldman Sachs Banker Hired to Do Very Little

The London Stock Exchange's investors want as little change as possible, and maybe a takeover deal.
Photographer: Luke MacGregor/Bloomberg
GOLDMAN SACHS GROUP INC
-0.89
As of 1:19 PM EDT
253.28 USD

Now is the season for uncontroversial CEO picks in finance. A few days after Deutsche Bank's reins were entrusted to a company lifer, London Stock Exchange Group Plc has picked its own continuity candidate: David Schwimmer, an investment banker at Goldman Sachs, will take over from Xavier Rolet, a former investment banker at Lehman Brothers.

The cascade of cringe-worthy Friends jokes on Twitter tells you that Schwimmer is a relatively unknown addition to the ranks of FTSE 100 CEOs -- and that the LSE's board and shareholders don't want to make big waves strategically.

As acrimonious as Rolet's exit was, his expansion into less cyclical, non-trading businesses such as financial data and indexing has been a hit with the stock market. The prospect of a continuity candidate at the helm kept LSE's shares hovering near all-time highs on Friday.

The Exchange That Runs Itself

LSE Group shares have risen despite almost six months of uncertainty over who would replace Xavier Rolet

Source: Bloomberg

There's another reason that markets might like a Goldman banker at the head of LSE: deal-making. Schwimmer is American and an exchanges specialist. Who better to pick up the phone if ever a U.S. counterpart came calling? Activist investor Christopher Hohn flagged back in January the possibility of a bid from CME Group Inc. or InterContinental Exchange Inc. There aren't many other obvious catalysts for LSE's shares, which already trade at a premium to their European peers.

Premium Valuation

LSE shares trade at a higher multiple of earnings than their peer group

Source: Bloomberg

Does Schwimmer have an easy job, then? Not exactly. Defending a premium valuation can often be harder than building up a battered one. Double-digit growth rates in businesses like indexing and technology services are set to slow over the next few years as customers try to cut costs and competition bites. Brexit also offers a healthy dose of uncertainty. JPMorgan analysts estimate LSE's compound annual revenue growth will slow to 11.7 percent between 2016 and 2019 from 14.8 percent between 2013 and 2016. Operational slips could still hurt.

All of this is likely to keep Schwimmer on a reliably cautious path, and that's probably what Chairman Donald Brydon was looking for. Brydon is due to step down in 2019 -- a sacrificial offering for the badly-handled spat with Rolet. In the meantime, we shouldn't expect any radical strategic overhauls.

Schwimmer's mandate from the market is clear: Don't fix what isn't broken. There were no doubt bolder picks out there -- blockchain evangelists will have to keep dreaming for a major exchange run by Blythe Masters -- but given the LSE's recent travails, the CEO pick is an understandable one. Rolet's tenure ended on a bum note with a failed tie-up with Deutsche Boerse AG, but Schwimmer's arrival seems like a belated compliment.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lionel Laurent in London at llaurent2@bloomberg.net

    To contact the editor responsible for this story:
    Edward Evans at eevans3@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE