Margareta Pagano: It's musical chairs on the exchanges and Clara Furse must be the conductor

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The Independent Online

Clara Furse, chief executive of the London Stock Exchange, will cheer her own market up on Thursday when she discloses excellent results. Operating profits for the year to March are expected to have jumped by some 50 per cent to around £279m. Furse will also give more details on present trading: according to a recent update, these will show a record start to the year, with group equity trades up 43 per cent and the UK order book rising 62 per cent. Even initial public offerings are up, which is positive given the darkening economic climate.

These are phenomenal results and Furse should be congratulated for the way in which the LSE has grown – particularly on how it has boosted algorithmic trading.

Yet Furse might not be feeling so cheerful herself. She has a couple of tricky issues to face over the next few months. Inevitably the economic downturn will affect revenue. There will also be the effect of new developments such as Turquoise, a rival trading system being put together by the investment banks because of Mifid, a new financial services directive from the EU. Then there is Chi-X, another rival that, for the moment, is said to be stimulating trade rather than taking it away. Plus Markets, the old Ofex exchange, is also snapping away at the LSE's heels, while in Paris, the NYSE-Euronext exchange is trying to tempt overseas listings away from London.

Put these factors together and you can see why the LSE's shares have fallen to £10 in recent weeks. They have recovered to stand at £11.67p, but that is still far below the £19.79 high reached at the end of last year when takeover rumours were still swirling round the LSE after the Nasdaq's abortive bid.

Shareholders must be feeling peeved at the losses on their book – particularly the Dubai Borse, which paid £14 a share for its 20 per cent stake, and the Qatar Investment Authority, which bought in at £16 to buy 14 per cent following the share swap after Nasdaq backed out. Apparently the QIA is no longer interested in buying the Dubai stake or increasing its holding, despite the shares looking cheap.

Even the City is less convinced than it was by Furse's claims, at the time of the Nasdaq bid, that the shares are worth £20. Eight out of 12 analysts say the shares are a hold and about the right price, while three rate it a sell.

But another recent twist in the exchange world may be irritating her even more: the defection of Caroline Silver, a top corporate financier, to Merrill Lynch from Morgan Stanley. Silver specialises in financial services and she advised Borsa Italiana on its merger with the LSE and Jean-Francois Theodore at Euronext on his many attempted bids for the LSE. She also advised Theodore on his eventual merger with the New York Stock Exchange – then headed by John Thain, who is now running Merrill Lynch. As reported by us last week, Silver will be joining Matthew Greenburgh – the "punch them in the face first man" at Merrill who has advised Furse on bid tactics over the past few years.

I'm told that Furse is not at all amused that the financier will be working with Greenburgh. Together they know just about everything there is to know about the exchange and its potential bidders. You can see why Furse is irritated, and surely it can't be long before she either drops Greenburgh or brings Silver onside. If she drops Merrill, it will be interesting to see who she chooses instead, as most of the big houses are conflicted out.

Silver's arrival raises another issue: could it mean the NYSE wants a friendly merger with London? It's a deal that has often been talked about and one that Thain never knocked down.

Furse's best defence is to reconstitute her shareholder base, which, apart from the big Emirate investors, is still dominated by hedge funds. She should perhaps consider going on the road to persuade more traditional investors – who've sold out to the hedgies – to come back.

This could be Furse's best line of attack too, should she wish to be the bidder. There are a couple of lonely looking exchanges still left on the continental shelf; Deutsche Börse and the Madrid exchange. Deutsche, with which the LSE nearly merged, brings one of the world's biggest futures exchanges with Eurex, while Madrid is highly profitable and growing fast. Both could be excellent fits, challenging the NYSE in Europe. Expect musical chairs in the next few months: the exchange story has far to go.

Willie Walsh lost his bonus but kept his head

All hats off to Willie Walsh , the diminutive chief executive of British Airways who has given up his bonus because of the calamities at Heathrow's Terminal 5. Walsh was absolutely right to do this, and it's refreshing to see a senior executive take the blame. He may have been helped by fellow Irishman David Burnside, who advised the late Lord King when he was BA chairman and who knows the airline inside out. The two have been lunching and chatting a lot recently. Walsh is keen to listen to what Burnside has to say about getting BA back into favour with both the City and the public.

But Walsh's own instincts are good. Throughout the T5 crisis, which saw 20,000 bags lost and 430 flights cancelled, he has been totally upfront about the mistakes made by BA and terminal operator BAA. He has certainly ensured the respect of investors, who were also rewarded with the first dividend since 2001 following the record profits. Let's hope other executives in similar situations take a lesson from Walsh.

Where's Iago when you need him as Brown's tragic tax flaws are exposed?

As indiscreet as ever, the wonderful Labour MP Bob Marshall-Andrews tells me that our Prime Minister displays the flaws of all Shakespeare's heroes: the envy of Othello, the indecision of Hamlet and the rage of Lear. To add to the tragedy, he says Brown picks advisers as poorly as Brutus.

Which brings us to tax, both tragedy and comedy. Why does Brown get himself into such a mess over tax? When he came to office, his aim was to make it simpler and help the poorer by reducing the tax rate, which he did. His summers spent in Cape Cod also apparently made him determined to improve the climate for Britain's entrepreneurs.

But if you look back over Brown's time at the Treasury, and now at No 10, it is ironic that his greatest errors have been in this area. First came the pensions tax credits, leading to the closure of thousands of final salary schemes. The next was SIPs, which would have allowed people to use their pensions to buy property but were withdrawn because of jitters among advisers. They were warned by City institutions that people would stuff their pensions with buy-to-let, denying the Treasury billions in tax.

Next were the changes to capital gains tax which in most cases hit the wrong people – the entrepreneurs who have invested in their businesses. Another ill-thought out move is taxing non-domiciliaries, more likely to hit middle-income people harder than the big shipping tycoons who were the real target.

And now the proposals to tax the overseas earnings of British companies, mainly on intellectual property rights, looks ripe for disaster. A number of UK companies are kicking up such a fuss, they could hold the Government to ransom. For once, wrongly so.

As Marshall-Andrews adds, Brown's in a zugzwang position – the German word for a "compulsion to move" chess concept in which a player will make his own position weaker than the hypothetical one when it is his opponent's turn. He'll need Iago's cunning to get out of this one.