Deutsche Boerse Under Pressure – US-FOREX.US
Something’s amiss at exchange operator Deutsche Boerse.April to June should have been a rollicking quarter for the German operator of the Frankfurt Stock Exchange, as well as derivative exchanges Eurex and the International Securities Exchange. Stock markets picked up, raising the value of what was traded, while there was frenzied activity in the corporate bond market. Yet the firm reported a 34% drop in second quarter profits. Both the net profit – 164.9 million euros – and revenues – 516 million euros – missed estimates by a wide margin.”We had expected revenues to go up compared with the first quarter from the high volume of corporate bonds, while we’ve also seen higher share prices that should have made up for a lower number of traded shares,” said Konrad Becker of Merck Fink Private Bankiers, based in Munich.The firm’s problem likely lies in competition. “Deutsche Boerse has probably lost market share to alternative trading platforms, and they are also in the process of reducing fees, so even if volumes increase we will see revenues stagnating or lower,” Becker estimates. Upstart alternative trading platforms – offering faster and cheaper program trading – have been a headache for traditional exchanges in the United States, but have taken a while to infiltrate the European trading community. “At the start some people were a bit suspicious, asking Can I do trades? Now they’ve shown themselves to be working and cheaper, they’re getting much more interest,” says Becker. He added that the platforms also benefit as banks, which have traditionally used the exchanges for their trades, grow more anxious to trim their costs in the downturn.Chi-X, the most successful of the alternative trading platforms in Europe to date, has a 19.4% of the FTSE 100 , though its share of the German DAX has risen rapidly to 15.5%, according to the latest data on the company’s website.
The rapid loss of revenues probably means there is more trouble round the corner. Dirk Hoffman-Becking of Sanford Bernstein forecasts that the third quarter “could be weaker yet given a very sluggish July in derivatives and equities trading.”
Deutsche Boerse
tumbled 6.6%, to 52.95 euros , in Frankfurt on Wednesday, following the release of the results late on Tuesday. Going forward, Deutsche Boerse’s big challenge – like that of the London Stock Exchange – is cost cutting. Last week, NYSE Euronext
scraped past expectations for profit, even as it reported a decline in revenues because of unexpectedly effective cost cutting measures. On that count, Deutsche Boerse seems to be on the right track: The firm spent 620 million euros in the first half, and is on track to meet its targets for a total spend of 1.3 billion euros .