NYSE Euronext, which spent a year working on a failed merger with Deutsche Boerse AG, is seeking to expand clearing services and reviewing ways to cut costs in the deal’s aftermath, a senior executive said.
“It’s about moving on,” Dominique Cerutti, president and deputy chief executive officer of NYSE, said in an interview yesterday. “For growth, our main project is clearing. It’s ambitious and we are on track. In terms of rationalizing, we are revisiting the different initiatives and seeing if the assumptions we started with are still valid.”
NYSE is looking at where it can trim expenses in its European market operations, which have overlapping areas in London, Paris and Amsterdam, though the focus is not on cutting jobs, Cerutti said. NYSE will also save money by clearing its own derivatives trades instead of paying LCH.Clearnet Group Ltd. The New York-based exchange won’t proceed with its U.K. market for contracts for difference or its NYSE Blue carbon markets venture, he said.
“We are focused on three areas,” said Cerutti, who joined NYSE after more than 20 years at International Business Machines Corp. “Boosting our growth through new services, deploying our capital and cash in the most effective way and rationalizing our business portfolio.”
NYSE executives in April pledged $250 million in annual savings by the end of 2014 and said a $550 million stock buyback will be completed this year. The company also announced “Project 14,” a program aimed at generating more savings.
The exchange plans to spend $85 million moving clearing for London derivatives trades to its own clearinghouse by next year while retaining the services of LCH.Clearnet for cash-equities transactions.
European regulators blocked NYSE Euronext from merging with Deutsche Boerse in February, frustrating plans to mitigate a slowdown in stock trading and boost earnings and sales through cooperation on derivatives. On April 30, NYSE said first-quarter net income fell to $87 million from $155 million a year earlier.
“Volumes have been depressed,” Cerutti said today. “I don’t know when they will return. The universal currency in the financial markets is confidence. And this confidence has been damaged.”
In June, NYSE lowered its forecast for its technology unit, saying growth will probably be in the mid-to-high single digit percent range. The exchange is now seeking to boost its business from so-called managed services for technology, Cerutti said.
“There was a severe spending reduction on technology in the first part of the year,” he said. “Any recovery will depend on the state of the capital markets. There is a booming business for managed services. We always had the plan but accelerated it last year. It’s still a small part of our revenue. We would not put a figure on it, but by 2015 we expect it to be a bigger part.”
After the failure of the Deutsche Boerse deal, the exchange joined an auction for the London Metal Exchange and lost out to Hong Kong Exchanges & Clearing Ltd.
“Consolidation is not over,” Cerutti said. “There are some valuable assets in the industry. As we evaluate the best way for us to deploy our capital we will consider whether it’s best to grow organically in some areas or to acquire, as was the case in the first phase of the deal with LME.”