Warburg urges Exchange to favour Euronext merger over Nasdaq deal

UBS Warburg, the City investment bank, yesterday broke ranks with rival US firms and publicly backed calls for the London Stock Exchange to seek a merger with Euronext, the exchange grouping being formed from the Paris, Amsterdam and Brussels exchanges in preference to a deal with Nasdaq, the US technology exchange which most UK brokers favour.

UBS Warburg, the City investment bank, yesterday broke ranks with rival US firms and publicly backed calls for the London Stock Exchange to seek a merger with Euronext, the exchange grouping being formed from the Paris, Amsterdam and Brussels exchanges in preference to a deal with Nasdaq, the US technology exchange which most UK brokers favour.

The call comes just a day after the LSE backed out of its merger with the Frankfurt exchange in the face of mounting hostility from smaller retail brokers and growing dissent within the big investment banking firms.

The decision has been seen as putting the Exchange "into play" even though Don Cruickshank, the chairman has insisted that he wanted to concentrate on fighting off the hostile bid from OM Gruppen, owner of the Swedish stock exchange, and allow more time for consultation before deciding on the LSE's next move.

In an internal memo for equities staff which was made public by the firm yesterday, Warburg calls on Mr Cruickshank to use today's annual meeting to set out his vision for the Exchange in a "global and European context".

As well as rejecting the OM bid, Warburg takes issue with the view advanced by retail brokers such as Brian Winterflood that the best alternative to the failed iX merger is a US deal.

"Obviously there is substantial interest by UK/European investors in US equity markets but we believe the LSE needs to find a European solution as a priority before developing transatlantic links." Warburg says Euronext "appears to have developed workable merger proposals" and has the systems and scale which make it an attractive partner for the LSE. "We think the LSE should be examining all options."

Warburg has been building up its stake in the LSE in order to increase its ability to influence the stock exchange's future.