London Stock Exchange takes Lehman charge and sets back Baikal launch

London Stock Exchange takes Lehman charge and sets back Baikal launch

Shares in the London Stock Exchange dropped by more than ten per cent after the UK market operator cancelled its share buy-back programme and warned of "extraordinarily difficult" market conditions.

The Exchange reported a five per cent rise in pro forma revenue to £345.5 million, for the first half. Profit before tax rose 30% to £127 million, which trailed some analyst estimates.

The stock moved down 11.48% to 513 pence as the Exchange said it was ending its £500 million share buyback programme in an effort to bolster its balance sheet and "to provide financial flexibility to pursue investment opportunities".

The LSE is facing unprecedented competition from new entrants to the business and investing in new infrastructure and trading platforms to keep pace with lower-cost incomers.

In June the Exchange announced its intention to launch a pan-European dark pool called Baikal. The service was originally announced in cooperation with failed investment bank Lehman Brothers.

In its first half statement, the Exchange booked a £6.1 million charge for bad debts and other provisions arising from Lehman's collapse, but confirms it will move ahead with the Baikal project, albeit at a later date than the original planned Q1 09 launch. The Exchange says it is weeks away from finding new partners and that it has abandoned its initial plans to use Lehman's proprietary crossing network as the technological foundation for the project.

"The Exchange remains fully committed to Baikal, expects to announce new partners shortly and aims to launch the venture late second quarter 2009, subject to regulatory approval," says the statment. "While it is likely that Baikal will launch into challenging markets the Exchange continues to expect a significant return on investment."

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