Deutsche Boerse CEO touts benefits of LSE merger, Berlin cool

FRANKFURT/BERLIN (Reuters) - Carsten Kengeter, the chief executive of Deutsche Boerse, lauded the benefits for the Frankfurt exchange and its customers on Wednesday of a proposed deal to merge the German exchange operator with the London Stock Exchange .

The talks are being closely watched by the government in Berlin, whose backing Kengeter needs to win support for the merger.

Some lawmakers in Berlin, fearing a loss of control, questioned what would happen if Britain votes to leave the European Union on June 23.

Both companies have downplayed any risk from Brexit, saying last week that the proposed merger would prosper regardless of whether Britain stays or leaves.

Kengeter told a financial conference in Frankfurt that the array of trading and services on offer in Frankfurt and London would not shrink as a result of the merger.

Moreover, banks would benefit from the merger of derivatives clearing activities because they would not have to put up as much collateral, he said.

"Market participants, including banks, would experience considerable cost savings," Kengeter said, adding that takeover rules limited his ability to comment on the merger discussions.

Theodor Weimar, head of UniCredit's German unit HVB, agreed that the European exchange landscape was currently too fragmented and the creation of a large European player would benefit banks. "That would be positive," he said.

Some lawmakers expressed reservations.

"In the case of Brexit, there is of course the danger that activities could be moved outside the European Union and therefore no longer subject to European regulatory standards," said senior German conservative lawmaker Ralph Brinkhaus.

Carsten Schneider, a senior lawmaker in the Social Democrats (SPD) said he would welcome the creation of a large, European exchange that is not susceptible to takeover.

German Chancellor Angela Merkel, Finance Minister Wolfgang Schaeuble and EU Competition Commissioner Margrethe Vestager were all informed about the plans, said another person familiar with the talks.

Deutsche Boerse's failed 2011-2012 tie-up with NYSE Euronext was blocked partly because Berlin did not advocate for it strongly enough in Brussels, according to sources.

The Economy Ministry in the German state of Hesse, where Deutsche Boerse is based, was also opposed to that deal.

The fact that Kengeter would run the day-to-day operations of a new company is viewed favourably in Berlin, while he is also regarded as easier to deal with than former NYSE boss Duncan Niederauer, said one person familiar with both merger attempts.

"Kengeter is far more diplomatic," the person said.