LONDON – London Stock Exchange Group PLC agreed Tuesday to buy a portfolio of fixed-income indexes and related analytics services from Citigroup Inc. for $685 million, the U.K. exchange operator's latest bet on the growth of passive investing.
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The LSE is under pressure to identify targets as part of its strategy to bolster earnings after European regulators in March blocked its proposed merger with Deutsche Börse AG. The European Union was concerned that the proposed $30 billion pan-European exchange tie-up would gain too much influence over the clearing of fixed-income trading.
The Citigroup deal fits with LSE's focus on expanding its operations selling market data and licensing indexes for institutional investors and developers of exchange-traded funds as new competition and computerized trading pressure fees from the more traditional business of operating venues for buying and selling stocks.
For Citigroup, the global bank gains a buyer that is committed to growing its Citi Fixed Income Indices and Yield Book operations that it had decided weren't key to its own strategy.
"This transaction is a positive outcome for The Yield Book and Citi Fixed Income Indices for both clients and employees," said Okan Pekin, Citigroup's global head of Investor Services, in a release.
The LSE's index business is among the exchange operator's fastest-growing operations as the increasing popularity of low-cost funds that mimic benchmarks drives demand for indexes. In the first quarter, LSE's index business reported an 11% jump in organic revenue from the year-ago period. The acquisition of Citigroup's fixed-income indexes are meant to augment that growth by broadening the exchange's offering of benchmarks to reach a larger customer base.
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Citigroup's fixed-income indexes business, which includes the World Government Bond Index, has about 300 clients, including 200 buy-side fixed income asset managers. The indexes will become part of the LSE's FTSE Russell's existing portfolio of indexes.
Citigroup's yield-book products are used to collect and analyze historical pricing data that are used to build indexes. The tools are applied to an array of fixed-income instruments such as mortgages, government and corporate bonds, and derivatives securities. The business services about 350 financial institutions globally, ranging from hedge funds to central banks.
Last year, Citigroup's yield-book and fixed-income indexes businesses generated $107 million of revenue, and earnings before interest, taxes, depreciation and amortization, a commonly used profit measure, of $46 million.
The acquisition is expected to close in the second half of 2017, subject to regulatory approvals.
Rory Gallivan contributed to this article.
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(END) Dow Jones Newswires
May 31, 2017 02:47 ET (06:47 GMT)