May 20: Market sell-off wipes out 2006 gains

May 22: Heavy selling took hold of the London market after 4pm, sending the FTSE 100 index, already down about 1 per cent, off 2.2 per cent. The FTSE 100 and FTSE Eurofirst 300 are now in negative territory for 2006 – the gains on each index since January have been erased. Today’s sell-off, partly derivative-driven, was even greater in emerging markets, with Russia and Turkey both off 8 per cent and India down 9 per cent. With investors fleeing to quality, the US market is holding up better but the mood in London is jittery to say the least. Join our online discussion about whether the bull market is over.

The London Stock Exchange is now faced with just one potential bidder after the New York Stock Exchange published its plan to merge with Euronext instead. As a result, the LSE’s shares have fallen below the minimum that Nasdaq - which already has 25.1 per cent of the LSE - would have to offer (£12.35½p, which is the highest it paid for its LSE shares). LSE shares fell more than 4 per cent to £11.90.

The market doesn’t think Nasdaq looks so smart, however. Its stock is down about 8 per cent as investors face up to the fact that the NYSE is not going to buy it out of its LSE position. And if the LSE won’t talk to Nasdaq, it could be left with an expensive stake and a creaking balance sheet but not a lot to show for it.

The NYSE’s chief executive, John Thain, says the $10.2bn deal with Euronext will be “significantly accretive” to NYSE shareholders, thanks in part to $100m of revenue synergies and $275m in projected cost-savings. In a conference call, Thain predicted a “definitive agreement” within the next 24-48 hours. Lest anybody should hope that this deal might expand into a three-way one with the LSE, Thain also said it would prevent the NYSE from doing other deals for “some significant time”.

Lex is commenting online but the bloggers are only just getting warmed up. David at Financetrends.blogspot thinks Nasdaq is floundering. Alex Gabor at Economic Epiphany says George Soros has been raising his stake in Nasdaq and the NYSE. And arcaex.blogspot.com is very interesting on how bad analysts have been at valuing exchanges.

BAA, the airports group which owns Heathrow and Gatwick, has confirmed it is to return £750m to shareholders as part of its attempt to see off Ferrovial’s hostile takeover bid.

Management changes at Goldman Sachs in London. Yoel Zaoui becomes the sole head of European investment banking. He previously shared the role with Chris French, Matthew Westerman and Addy Loudiadis. French becomes chairman of investment banking in Europe. Westerman will be sole head of the European financing group (equity and debt capital markets, derivatives, pensions, leverage finance and structured finance). Loudiadis went on sabbatical a month ago. It isn’t clear yet just how significant this might be, if at all.

The other big story today is that Credit Agricole of France has been forced to admit it is considering a bid for Alliance & Leicester. Shares in A&L jumped 5 per cent but a deal here feels like a long shot. A&L shareholders will be pleased to learn that Agricole showed itself to be a generous bidder when it acquired Crédit Lyonnais, although then it was under greater pressure than it will be in this case. Crédit Agricole has not put a proposal to A&L. Lex will be commenting online.

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