Trading up

FRENCH moneymen were in Beijing in November talking up their financial wares to the people who have the cash these days. Whether the Chinese will snap up French stocks, bonds and asset management as readily as they do Hermès scarves remains to be seen. In fact, Paris’s very future as a financial centre is in doubt.

Ownership of the much-bought Paris Bourse is once again up for grabs. On November 13th IntercontinentalExchange (ICE) completed its purchase of NYSE Euronext, which owns the main stock exchanges of New York, Paris, Amsterdam, Brussels and Lisbon, as well as LIFFE, the London International Financial Futures and Options Exchange.

ICE is more interested in the derivatives exchange, which will be attached to its own, than in the stockmarkets. It plans to float the European ones next summer. However, a direct sale to a bidder such as NASDAQ, London Stock Exchange Group or Deutsche Börse, all of which have sniffed around Euronext in the past, remains a possibility.

Politicians in France routinely hit the roof when symbols of national virility risk falling into foreign hands, and Euronext is no exception. Although its merger with New York Stock Exchange Group in 2007 must have created a slight estrangement, Euronext is still run from Paris.

What is more, the French are coming to realise that, with bank lending constrained, efficient capital markets are more essential than ever to economic growth. It may not matter much to big companies where those markets are, but it does to smaller ones, who raise money locally. A visible, regulated stock exchange is the heart of the ecosystem of companies, investors, bankers and regulators that makes a financial centre, says Arnaud de Bresson of Paris-Europlace, a pressure group. A report by Thierry Francq, former head of the Autorité des Marchés Financiers, the market regulator, concluded that the sale of Euronext to a rival could weaken the provision of financial services in Paris.

But it is hard for the government to drum up a patriotic bid for Euronext at a time when it is antagonising the firms that might make one. It has instituted heavy taxes on banks and high earners, supported a swingeing European levy on financial transactions and inveighed against heartless capital at any opportunity. When bankers were first approached to rescue Euronext, one of them snarled, “Why should I put my hand in my pocket when they are pushing a tax that will destroy the business they want us to finance?”

Tempers are cooler now. The government has moderated its enthusiasm for a tough financial-transactions tax and bankers feel they are finally being listened to. But they are not all convinced that Euronext is worth investing in. Its bosses have been asleep at the wheel since 2007, some say: fees are too high, causing Paris to lose ground to London and Frankfurt.

In the 1990s and early 2000s Paris had hoped to rival those cities as a financial centre. It slicked up its stockmarket, set up a derivatives market and joined in the rush to merge exchanges. Yet today the value of firms listed in London is more than twice that of those on the Paris Bourse. French banks do much of their trading in London. In September Total, a French oil company, made waves when it said it was moving up to 75 employees to London, partly because 95% of those who analysed and invested in its shares were there. Mr Francq points out that more than half of all transactions to do with France’s biggest companies are conducted from abroad, mainly London.

Derivatives on single French shares are more easily traded in Frankfurt than in Paris, even though French banks are the main participants in that market. Frankfurt also seems to be doing a better job of courting China: Deutsche Börse signed a co-operation agreement this week with Bank of China, which the Germans hope will lead to bigger things. Germany is China’s main European trading partner, and the presence on its soil of the European Central Bank is an asset Paris cannot match.

In its defence Euronext says that despite heavy competition from trading platforms such as BATS Chi-X, on which equities from all over Europe change hands, it has lost a smaller share of its business than the London Stock Exchange. It has also maintained the quality of its market: buyers and sellers get better prices on Euronext than on other exchanges 85% of the time, as well as greater liquidity, it says. The new-listings pipeline has rarely looked better, argues Dominique Cerutti, Euronext’s boss.

Will France’s banks and insurers do their patriotic duty? It is too soon to tell, but sentiment is said to be “on the whole favourable”. Do they have the cash, given the straitened times? “Ah,” says Yves Perrier, chief executive of Amundi, France’s largest asset-manager. “If the project is good, the money can always be found.”