German-US market fusion: Who is swallowing whom? (Feature)

By Daniel Schnettler, Claudia Kahlmeier and Joern Bender Feb 17, 2011, 1:02 GMT

Frankfurt/New York - It should be clear: the stronger Deutsche Boerse merges with the weaker New York Stock Exchange, giving the Germans the advantage. But both sides seem to fear being dominated by the other as they create the world's largest stock exchange.

The press conference shortly after the deal was announced Tuesday illustrates the point. Deutsche Boerse chief Reto Francioni is used to being the boss, but he appeared to play second fiddle to his NYSE Euronext counterpart Duncan Niederauer.

Niederauer's confidence in stating 'we are creating the leading market group in the world' sounded as if it was his baby even if on paper it seems clear that the German side holds the cards and New York is the junior partner, with fewer earnings and value.

But in the United States, politicians fear a loss of prestige through the merger.

'This marks a major decline of New York as a center of world finance. It is a fundamental blow to our capacity to lead the world and to create jobs,' said conservative politician Newt Gingrich at a recent conference.

Much of the sticking point on the US side comes from the desire to keep the New York Stock Exchange name-brand alive.

'America has a tradition of protecting its national icons and we must act to protect the New York Stock Exchange,' said Democratic Congressman Ted Deutch.

'Just as we wouldnt change the name of the Statue of Liberty, Mount Rushmore or the Golden Gate Bridge, a new majority owner, whether foreign or American, cannot be allowed to change the name of the New York Stock Exchange.'

US Treasury Secretary Timothy Geithner even weighed in Wednesday, suggesting the New York Stock Exchange should keep its iconic name despite the planned merger with Frankfurt's Deutsche Boerse.

But Geithner stopped short of calling outright for NYSE to lead the name of the newly created exchange, saying it was ultimately up to the two companies themselves to decide.

US Senator Chuck Schumer directly asked Geithner the question during a congressional hearing, telling the Treasury secretary that 'there's no better brand (than NYSE) when it comes to exchanges.'

'I agree very much that, you know, this is ... in some ways the world's iconic stock exchange,' Geithner responded.

'That's a decision the companies are going to have to make. And I think there's a good chance that they'll decide, as you suggested, that that would be good for business,' Geithner said.

In Frankfurt, meanwhile, there are fears that jobs might be at risk and leadership handed over to the US side.

Stiff and earnest, Francioni seemed happy to alllow Niederauer take the lead, all the while insisting this was a merger of equals.

When asked what would change on Wall Street, Niederauer was quick to assure that nothing would change.

But such assurances have yet to be made in Frankfurt. 'The sworn balance between the two firms will not last long,' said Johannes Witt, head of the market's workers' council. 'Above all, the employees in IT in Frankfurt and Luxembourg are in danger.'

The Deutsche Boerse is to have a majority on the board of directors, while Niederauer will be chief executive, under the terms of the deal.

'The chief position for Niederauer smells like future New York dominance,' NordLB analyst Constantin Rohrbach said. The New York exchange has already completed one merger of 'equals', taking over pan-European exchange Euronext, but eventually coming to dominate.

Deutsche Boerse seeks to assure that that won't happen again, with 10 out of 17 seats on the board going to the German side. Still, boards can change and more than half of the stockholders of the new body are Americans, according to Niederauer.

'We have two headquarters, we have a well-balanced board,' Francioni has said to assuage concerns. 'We are on the safe side.'

Meanwhile, local officials in Germany and the European Union have vowed to review the deal. Just as US officials such as Senator Chuck Schumer have vowed to keep the 'New York' in New York Stock Exchange at the forefront.

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