LSE/LCH.Clearnet - out of the hat Whoever thought it would all be over by Christmas? When London Stock Exchange made a cash offer in March for up to 60 per cent of LCH.Clearnet - in a deal that valued the clearing house at €810m - it expected the transaction to be completed in the fourth quarter. Neither side bargained for the regulatory hiatus that ensued. But when LSE and LCH pulled a cracker on Christmas Eve, out dropped an agreed revised offer that addresses the higher regulatory capital requirements unleashed mid-deal, has a lower sticker price, and means yet more time to complete the deal. So much for silly hats and groan-inducing jokes: investors met the news with the sort of enthusiasm usually reserved for turkey leftovers. If anything, regulators have had the last laugh - and rightly so. Given the expanding role which central counterparties or clearing houses such as LCH are taking in the financial system, regulators want them to hold more capital. In September, European Securities and Markets Authority recommendations indicated that LCH would need to find about €300m of fresh capital. After months of haggling between LSE and LCH's bank and broker shareholders, the exchange group has cut the headline offer price for its 60 per cent stake by a quarter, to €340m. Yet that adjustment accounts for only two thirds of LSE's outlay for its share of LCH's cash call. Seen that way, the joke is on LSE, which will have to find early cost savings to recoup the €60m shortfall. Looked at another way, however, LSE has retained the commitment of LCH's user-owners, and improved capability in post-trade services will allow it to compete more effectively with peers. LSE shares have returned 25 per cent this year to trade on 12 times forecast 2013-14 earnings. Smoother execution of the LCH deal and revenue gains do not yet look to be fully priced in.