By Nandini Sukumar and Whitney Kisling
Nov. 6 (Bloomberg) -- Deutsche Boerse AG joined NYSE Euronext in reporting a decline in third-quarter profit as trading slowed and the largest exchanges in Europe and the U.S. lost business to smaller competitors.
Deutsche Boerse’s net income fell 38 percent to 158.3 million euros ($235.4 million) from 257.3 million euros a year earlier on fewer transactions and lower fees, the Frankfurt- based exchange said yesterday. NYSE Euronext reported a 28 percent decline in third-quarter profit last week as equity trading revenue fell and European competitors took market share.
Business at NYSE Euronext, London Stock Exchange Group Plc and Deutsche Boerse has slowed following the worst financial crisis since the Great Depression. At the same time, competition from so-called multilateral trading facilities, such as Chi-X Europe Ltd., Turquoise and Bats Global Markets, has wrested more than 25 percent of trading from traditional exchanges in the last two years.
“The competition has stiffened up, and the overall market volume is down a bit from last year,” said Sang Lee, a market analyst at Aite Group LLC, a Boston-based financial-services consultant. The biggest exchanges “see their revenue coming from the trading side declining, driven by the competition from some of their smaller, more nimble competitors that are out there,” he said.
Biggest Stock Retreat
Deutsche Boerse’s profit of 85 euro cents a share missed the average adjusted estimate of analysts surveyed by Bloomberg by 4.4 percent. While NYSE’s profit beat analysts’ estimates, it still spurred a 6.3 percent retreat in the stock on Oct. 30, its steepest sell-off in four months.
Nasdaq OMX Group Inc., owner of the second-largest U.S. stock exchange, said yesterday that profit rose 3.4 percent after it cut expenses and recovered market share in the nation’s equity trading with lower fees. Third-quarter net income climbed to $60 million, or 28 cents a share, from $58 million, or 27 cents, a year earlier. Excluding some items, profit was 42 cents a share, matching the average estimate of 18 analysts surveyed by Bloomberg.
NYSE’s net income fell to $125 million, or 48 cents a share, in the third quarter from $174 million, or 66 cents, a year earlier, the New York-based company said on Oct. 30. Excluding some costs, profit was 53 cents a share, beating the 46 cent average of 17 analysts surveyed by Bloomberg.
Market Share Drops
NYSE’s share of U.S. equity trading in September fell to 28 percent from 34.3 percent a year earlier. Its share of France’s CAC 40 Index volume dropped to 46 percent in September from 55 percent a year earlier, according to data compiled by Thomson Reuters. NYSE boosted rebates for its biggest customers and cut fees at two options exchanges in the past year to stem losses in market share in Europe and the U.S. to newer competitors such as Chi-X and Direct Edge Holdings LLC.
Nasdaq and NYSE battled only each other for U.S. equity trading for about three decades, with the New York Stock Exchange claiming most of the market, until Bats and Direct Edge started about four years ago, now accounting for about 20 percent combined.
Deutsche Boerse’s costs fell 1 percent to 306.7 million euros in the third quarter, and revenue dropped 19 percent to 500.9 million euros.
“The decline is largely due to price changes in trading of U.S. options and in the settlement of German securities as well as effects caused by the weaker U.S. dollar,” the exchange said in the statement yesterday. Costs in 2010 won’t exceed the 1.28 billion euros it’s targeting for 2009, a forecast that the exchange reiterated yesterday.
Sales Decline
Deutsche Boerse is part-owner of Eurex, Europe’s largest futures market. It bought New York-based International Securities Exchange Holdings Inc. in 2007 and also owns Clearstream, the region’s No. 2 securities-settlement company.
Sales from the company’s Xetra stock trading unit dropped 37 percent to 63.1 million euros. Revenue from Eurex slid 26 percent to 191.5 million euros. Sales at Clearstream declined 7 percent to 176.6 million euros. Revenue from Market Data & Analytics fell 2 percent to 45.4 million euros.
“Competition in Europe has given a big headache to incumbent exchanges,” Mamoun Tazi, an exchange analyst at MF Global Ltd. in Geneva who rates Deutsche Boerse “neutral,” said in an interview yesterday.
To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.
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