Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=215190
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Sonali Basak/MEDILL

CME Group, one of the world's largest clearinghouses, reported sharply lower quarterly profits.


CME Group earnings drop but volumes slightly climb

by Sonali Basak
Feb 05, 2013


The world’s leading derivatives exchange and clearinghouse, CME Group Inc., turned in fourth-quarter earnings that were down sharply, but in line with analyst forecasts.

Net income fell 78 percent to $166.8 million, or 50 cents per share, from $745.9 million, or $2.25 per share, in the year-ago period when CME was helped by a huge tax benefit.

Adjusted for one-time items, (including a $43.5 million tax expense), CME Group said earnings in the latest quarter were 63 cents per share, matching the expectations of analysts surveyed by Yahoo Finance.

CME Group executives remain “cautiously optimistic” about the trading environment in relation to last year, said CEO Phupinder Gill. Although futures trading has suffered the effects of low interest rates and a decline in investor confidence, Gill said the company’s outlook remains positive for 2013.

The end of 2012 showed an increase in volume compared to the first three quarters of the year. “We are pleased with the trends we have seen so far in 2013, especially in interest rates and energy,” said Gill.

Overall volume in futures markets had been down throughout 2012. After trading scandals with MF Global Holdings Ltd. and Peregrine Financial Group, investors have stayed away from futures markets.

“Despite facing a difficult environment with low volatility in 2012, we made significant progress in advancing our global strategy while preparing for the changing regulatory landscape,” said CME Group Executive Chairman and President Terry Duffy in a prepared statement.

Jillian Miller, analyst at BMO Capital Markets, also sees hope for progress. “While it’s early days, improving economic conditions globally, volatility surrounding interest rates [and greater risk taking in the market place] may be pointing to a rebound in financial products in 2013,” she wrote in a report.

In the latest quarter quarter, CME also hit record trading volumes for treasury options, NYMEX Brent crude oil, and gold futures. CME reported in a press release that average daily trading in metals has “shown robust activity.”

Furthermore, 2013 is more promising for futures trading clearinghouses such as CME Group, because of changes in derivatives trading regulations.

Gill said CME is well positioned in providing these services and plans to take full advantage of the regulatory landscape. Additionally, CME plans to invest significantly in an advertising campaign to restore faith in derivatives markets, said James Parisi, CME chief financial officer, in a conference call with analysts.

The first wave of regulatory changes will take place in March and investors wait to see whether this will bring a change in activity for CME.

Gill assumed position as CEO early in 2012 and has a number of initiatives in place to keep CME Group’s outlook positive moving into 2013, including expanding their global footprint and a new headquarters in London.

For the full year, CME Group earnings were $893.3 million, or $2.70 per share, down 51 percent from $1.81 billion, or $5.43 per share.

CME’s earnings were released after market close Tuesday; in New York Stock Exchange trading, the company’s shares closed Wednesday down $2.37, or 4.0 percent, at $56.81.

“We have a lot to be proud of,” said Gill, “But a lot of important work needs to be done.”