Interview: Doug Webb, London Stock Exchange CFO

Ironically, that same day, The Times published a letter from Dame Clara, defending the LSE’s technology as cutting edge. A week later, Lehman’s demise left Furse without a partner on the exchange’s ‘dark pool’ facility for European equities, Baikal, part of its liquidity-boosting efforts against the clutch of smaller pan-European multilateral trading facilities such as Chi-X (owned by a subsidiary of Nomura bank), Turquoise (a collaboration between nine investment banks including UBS, Morgan Stanley and Deutsche Bank), junior stock market Plus and BATS Europe. This delayed Baikal’s launch until this summer.

“We play an important role in the financial services industry, but we’re providing an infrastructure that these days is more IT focused,” Webb says. “Understanding that part of the operational aspects of the business, being able to challenge and work with the CIO and the IT people, is something I can really bring. I’ve seen projects go well and I’ve seen projects go badly and seen those lessons learned from what occurred.”

Running Logica’s finances was clearly a formative experience and, rarely for FDs, involved much moving about the business. Less than 12 months after joining as group FC in 1993, Webb was made CFO of Logica’s North American business, preceding a stint as an executive vice president for its telecoms arm. That role lasted five years and saw him add the communications department to his remit.

After being made COO for the region, too, he4 took a year out to complete the BT Global Challenge yacht race before returning as European FD. Then, just 15 months in, he moved again to become FD for continental Europe. Five months after that promotion, Webb left for Qinetiq, becoming group FC, then group CFO in late 2005 in a boardroom shakeup as the company prepared for its controversial £1.1bn flotation. “I spent most of the time at Logica as sort of a COO for North America ­ even when I was wearing the CFO hat it was broader than that. The last thing you’d ever catch me doing is just being stuck in numbers,” he concedes.

That’s just as well. The LSE’s shares lost more than 74% of their value by the end of 2008, one of the ten worst performers in the FTSE-100 largely because of the paralysis of debt markets which locked the door on IPOs ­ its primary business ­ and on admission of new companies to its Aim market. Now it is being nibbled by pan-European upstarts such as Chi-X and Plus. They say they are taking business from the LSE. Webb, as expected, says the challenges posed by MiFID-borne minnows is nothing new for the exchange.

“It’s a common misunderstanding ­ one that I probably had before I came to the exchange ­ that the LSE is doing all the share trading in the UK, when it’s only in the last couple of years we’ve reached 50%,” he says. “But some of these new entrants have actually helped grow a whole new segment of our market that has been very complementary for us as they provide more liquidity. We’re not frightened by it. I would rather have a smaller market share of a growing market than a large market share in a static market.”

Clear growth
One such growth market for the LSE is post-trade services, including clearing, as fears that another big bank collapse would leave traders high and dry highlight counterparty risk. The exchange has expanded its clearing activities this month through LCH. Clearnet, in which it is a minority investor, moving its international order book over to its system. It already uses LCH. Clearnet for its other UK and European order book trades.

Some reports say LSE may join the consortium being organised to make a bid for LCH. Clearnet led by inter dealer-broker, ICAP. Webb sounds warm on the idea. “We’re paying attention to what’s going on and reserving our position on it,” he says.

Webb says this is another bit of the business he is still studying. “The post-trade operations in Italy, for a CFO, are the most complex to understand, acting as this central counterparty in the market, protecting the market from what might happen to other participants as was seen in the Lehmans demise. I spent time in Rome where that business is based, just sitting with people there who understand it so intimately and are good at explaining it to new CFOs in a very clear manner.”

According to the Federation of World Exchanges, in terms of the total dollar value of share trading on the top ten exchanges globally in 2008, LSE lost 37% on the previous year compared with 21% at Euronext and 10% at Deutsche Börse. But it still raised the most capital through primary or secondary issues in 2008 of the ten exchanges globally, with the largest investment flows, posting a 50% rise on 2007, one of only three that did not post negative gains. (Euronext’s figures were still being calculated when this data was published.) It will be hard to uphold that performance in 2009.

Ready for the upturn
Webb says he is focused on preparing the group, its platforms, its business mix and its finances, for the upturn. Cash, of course, is king again. “I wouldn’t have predicted when I joined that I would be spending a lot of time on banking matters, because last June [the economic crisis] wasn’t so high-profile. But within three months, I started to worry about the fact that we typically have £140m cash on deposit and many times that amount in our clearing operations. I started spending an awful lot of time just worrying about the risks around that.”

What about the possibility of more suitors? “At the moment, market conditions are quite difficult for anybody to undertake a transaction and doing a debt finance transaction is almost impossible.

Everybody’s equity is pretty depressed so there will be some quite difficult decisions to go through to be able to do anything. But with the number of new entrants, whether the number is sustainable and whether that means more conso lidation of the type we’ve had in the past or something different ­ we’ll have to wait and see.

I’ll never say never because I’ll only get proven wrong a month later… but the factors out there seem to weigh against the likelihood in the short-term.”

Meanwhile, Webb is enjoying the switch from contracts-led business to a place with little of that stability and looking forward to giving his finance team the chance to spread their wings, too.

“The finance team has been under tremendous pressure while in bid defence mode. It had to be very rigorous and quite ‘boxed in’ because there’s a process and you have to follow it ­ you’ve got advisers all over you. I want to develop a bit more freedom for people, give people opportunities to flourish and come up with new ideas, perhaps do things in different ways.”

Read our interview with Plus’s CFO Nemone Wynn-Evans.