State could miss Brexit breaks amid tiptoeing, bourse chief says

Ireland risks being beaten by European rivals to financial market opportunities arising from Brexit as it tiptoes around political sensitivities surrounding the UK’s exit from the EU, Dublin’s stock exchange’s chief executive warns.

As the Irish Stock Exchange reported a 25 per cent increase in profit after tax last year to €6.7 million, Deirdre Somers said: "I fear the natural and understandable caution around implications for other sectors, as well as the implications for Northern Ireland, from Brexit may lead us to not co-ordinate adequately around the opportunities."

Ms Somers said she would like to see a “cohesive Government strategy” to win business and said the exchange plans to set up a special unit “very soon” to weigh up and deal with the consequences of Brexit.

While Ms Somers says she understands Ireland’s reticence to poach business from its nearest neighbour in the City of London, France, the Netherlands and Poland are not wasting any time.

“I don’t believe that their offering is anywhere near as compelling as Ireland’s offering could be, particularly in the capital markets and securities arena,” she said. “We’re the only English-speaking, common law [jurisdiction] among them. We are nearest to the UK, have very similar rules and regulatory approaches. We need to have a plan.”

On back foot

As the Government finds itself on the back foot this week, fighting the EU on Apple's tax affairs in this State, Poland's deputy prime minister Mateusz Morawiecki arrived in London on Thursday to woo bankers, with plans to meet top executives at UBS, Barclays, Citibank, Credit Suisse and others.

The French government is widely seen as having mounted the most aggressive pitch to attract financial services activity from London following the June referendum.

Ms Somers said the matter over whether the UK retains its ability to passport financial services across the EU won’t be clear “for three years, because it will be the last thing to be negotiated and decided”. However, initially she sees “pretty significant opportunities” for Dublin, and the exchange, if UK-based hedge funds based more funds in Ireland.

With 34,304 securities listed on the Irish Stock Exchange’s markets at the end of 2015, the bourse was, according to the World Federation of Exchanges, the leading exchange globally for listing bonds and investment funds last year.

Revenues at the exchange rose 12 per cent to €27.8 million amid record trading on its markets in 2015, with total assets increasing by 17 per cent to €59.8 million.

While the turnover in Irish equities and on the Iseq20 exchange traded fund surged 32.5 per cent last year, helped by four initial public offerings, the growth rate has slowed to 11 per cent this year. The IPO market has virtually dried up globally so far this year.

Public limited company

The exchange became a public limited company in 2014 as it demutualised after 221 years – a move that allowed its then six remaining founding members to share a €27.5 million windfall. One of the six, Royal Bank of Scotland, subsequently exited its investment, leaving Davy with a 38 per cent stake, Goodbody Stockbrokers with 26.7 per cent, Investec with 18.5 per cent, while Cantor Fitzgerald and Campbell O’Connor each hold 8.4 per cent.

While the Irish Stock Exchange paid no dividend last year, Ms Somers said it is “highly likely” it will make a payout on earnings for the current year, subject to board approval.

The company had €42.2 million of short-term investments at the end of December, all comprising cash deposits. Ms Somers said much of this is ringfenced regulatory capital underpinning the business, as well as cash that will be used to fund an extension of its headquarters at a cost of €15 million.

The exchange’s number of employees has risen by 20 per cent in the past year to about 120.