By Huw Jones
LONDON (Reuters) - Euroclear is open to a "fundamental transformation", either through a listing or placing shares with major investors, but is ruling out a merger, the chief executive of Europe's biggest stock and bond settlement house said.
Euroclear is a cornerstone of Europe's financial plumbing, ensuring the completion of securities transactions worth 791 trillion euros last year.
It looked after nearly 29 trillion euros of assets in 2018, about half the European settlement market, and announced in March it has hired Goldman Sachs (NYSE:GS) to look at strategic options, barely a year after Lieve Mostrey became its chief executive.
"We are open to a fundamental transformation of our shareholding, and we would like to do that in an orderly fashion," Mostrey told Reuters, adding that she will update Euroclear shareholders after the summer.
"We are examining two options, private placement with long term investors, or an IPO. We don't think we should merge with any party," the 58-year-old Belgian said.
Any attempt to take over Euroclear would inevitably face tough scrutiny from the European Union, given the company's strategic importance to the bloc's capital market.
UBS described Euroclear as a "hidden jewel" in 2017, saying a merger with London Stock Exchange would make sense and pose tougher competition for its main rival, Deutsche Boerse's Clearstream.
However, it was rival exchange ICE (NYSE:ICE) which later that year bought just below 10% of Euroclear in two transactions, valuing the Brussels-headquartered company at 5.8 billion euros.
This had made several shareholders sit up and ask how they could offload their small stakes, Mostrey said, with many banks wanting to sell to avoid having to hold capital against an unlisted shareholding.
THREAT TO BUSINESS
LSE, a major Euroclear customer, bought a 5% stake in it in January. But most shareholdings are far smaller, making them less attractive and laborious to scoop up.
The nine largest shareholders own 55% percent of Euroclear, but there are about 115 shareholders, meaning a long tail of firms owning fractions of 1%.
"An orderly structured process can help to put big and small shareholders that want to sell a bit more at par in the process," Mostrey, a former BNP Paribas (PA:BNPP) and Fortis banker, said.
Faced with Brexit, 50-year-old Euroclear moved its holding company from Britain to Belgium and raised the cap on voting to 25% from 5%.
Mostrey said a cap would be hard to keep if the company floated, but it was essential that Euroclear remains connected to a broad range of clients, whatever its future structure.
"We believe we will continue to have a diverse shareholding ... As soon as we would be owned by one party, it would be a threat to our business," Mostrey said.
Mostrey said Euroclear would be attractive to long-term investors like pension and sovereign wealth funds attracted by its steady dividends.
Euroclear made a net profit of 322 million euros in 2018, with 75 percent of revenues from its settlement, safekeeping and funds business, but the strongest growth is in helping to shuttle collateral around the financial system to back trades.