When Xavier Rolet took the helm of the London Stock Exchange in 2009, business was at a low ebb. As rivals across Europe and America had forged international mergers and snapped up smaller exchanges, the LSE was left on the shelf. At the same time, its relations with its biggest customers in the City were strained.
Things had become so bad that leading investment banks had set up their own share trading platform in an open attempt to undercut the LSE. Rolet had to reassert the Exchange’s place on the international stage and as a cornerstone of the City. Yet few had heard of Rolet before his appointment and many doubted whether the Frenchman could rescue the LSE from inexorable decline.
But Rolet is built of sterner stuff than his mild-mannered exterior might suggest. And this summer he’s proved it, implementing a shake-up of top executive roles in a move that could see the Exchange turn the tables on its New York rival by mounting a takeover bid for Nasdaq in the US.
His determination could stem from his background in the gritty Parisian suburb of Sarcelles, where, he quips, “people burned cars instead of having public street lighting”. Rolet escaped by joining the French air force. He went on to win a scholarship to Columbia University and his business degree led to Goldman Sachs and a career at a range of blue-chip banks in New York and London.
After 23 years in Britain, Rolet is quite the Anglophile and has little time for the continental model of business and economics.
“Britain is no longer a large nation in terms of population or the size of its economy, but it is a great nation because it has innovated for 250 years and it can continue to do so. Why did it innovate? Because of equity finance. In the 18th and 19th centuries the guys who were funding the pepper trade, the guys funding the steel industry, the rail industry and the mining industry were equity investors. This country was based on traders and merchants representing British interests. They built on trade and trade was spread by the rule of law and competition. I do not believe that is the dominant model in Europe.”
Rolet’s fervour for Britain’s mercantile past is also matched by his passion for ‘man-of-action’ hobbies. The 52-year-old enjoys riding motorbikes and scuba diving and he has taken part in Paris-Dakar motor rallies. In the rather less dramatic environment of his City office, he is rectifying what he views as the strategic errors of the past. “There are two seminal events for the LSE. The first was not getting into the post-trade market,” he says. By this Rolet means the back-office work of clearing and settling trades after they have been agreed through the Exchange. “Then, in 2001, there was the failure to buy Liffe, which was the leading derivatives business in London.” Ironically, this was bought by French-based exchange group Euronext.
Rolet is now playing catch-up. The LSE has agreed a deal to buy a majority stake in clearing house LCH and is developing its own platforms to trade derivatives. The LSE is back on the front foot, hence the rumours that it may be in a position to make a bid for Nasdaq.
Rolet is insistent that the LSE has a crucial role to play in the British economic recovery, not because of the blue-chip companies listed on his Exchange, but because of what it could do for small and medium-sized companies. And here he returns to his praise for British entrepreneurial culture. He talks fast (his English is faultless) with an evangelical zeal and more than a hint of disdain for France and Europe in general.
“There are 23 million small and medium-sized enterprises in Europe and about 4.8 million of them are in Britain. France has only about 2.6 million. They are the key to growth because growth to me means jobs. There are three constituents that can create jobs. First there is the government, and we now know that government is not going to create jobs. Then there are the big global companies. But if you look between 2005 and 2007, with three years of strongly rising corporate earnings, the blue-chips overall created no new jobs. So if we want growth, we’ve got to look to the small and medium-sized enterprises. They are not just going to be a contributor to growth, they are our only source of growth and their number one issue is access to capital.”
But Rolet argues that bank debt is the wrong way to fund small start-up firms. Instead, Britain should encourage more equity funding: “You’ve worked for 15 years in a leading university and you’ve come up with a great biotech idea and want to set up a business, so you see a bank. What is the first thing they ask you to do? Extend the mortgage on your house. From month one, you have to pay interest. On top of that, statistics show that one in three start-ups go bust. What does the bank get in return for that risk? A fixed-rate return. It is a mismatch.
“But if you go to an equity investor, they will want 30 per cent of your business, but they won’t want you to pay for a mortgage. There is no immediate cost to the business. But if you make it big they will make out like a bandit.”
Rolet is lobbying the Treasury and the Department for Business for changes to tax and other incentives. He would also like to see Britain introduce a law along the lines of America’s JOBS Act. The Jumpstart Our Business Start-ups measures were introduced in April by the Obama administration to make it easier for new companies to raise capital by issuing shares to investors.
“If London ever loses its pre-eminence it will only be owing to the actions that we in London take – market participants, politicians and regulators,” warns Rolet. “I am concerned that in the objective to improve the regulation of finance we are going to go overboard and make London uncompetitive. If some of your biggest banks go bust, that is not competitive, so competitive regulation does not mean lax regulation – it is about setting the right balance between resilience and attractiveness.”
Though Rolet and wife Nicole live in Britain and his three children have been educated here, he maintains close links with France, where he owns a restored former priory in the Vaucluse, that he has turned into a conference centre and the winery, Chêne Bleu. But out of the past 20 months, he says, he has been back to France for just three weekends.
The land of his birth will always have a place in his heart, but Rolet’s head is firmly focused on the City of London.
A version of this article appeared in the Mail on Sunday.
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