Due to a variety of difficult market conditions, Deutsche Börse Group’s cash and derivatives market segments struggled in the second quarter of 2014, though positive results in the post-trade as well as market data and services businesses offset some of the losses, as net revenue (total revenue minus volume-related costs) fell 2% year over year to €488.4 million.
Out of all of Deutsche Börse’s business segments, Clearstream fared the best with a 4.3% increase in net revenue to €172.8 million. The average value of assets under custody increased 5% year over year to €12.2 trillion, due to a higher German equities market and additional assets from major customers contributing to international growth, says Deutsche Börse. Net revenue for the custody business increased by 4% year over to €87.1 million.
Total settlement transactions for Clearstream decreased by 4% year over year due to lower trading activity, though OTC settlement volume saw an uptick, including a 5% increase for the ICSD and 7% for the German domestic market. In all, net settlement revenue went up 7% year over.
Clearstream’s Investment Funds Services (IFS) business, through its Vestima platform, also had a positive quarter feeding into the custody and settlement businesses. IFS processed 2.1 million transactions, a slight increase over the 2 million last year. Most notably, though, IFS’ average value of investment funds under custody for the quarter was €317.2 billion, a 20% increase over last year.
For Clearstream’s Global Securities Financing (GSF) business, which includes tri-party repo, securities lending and collateral management, average outstanding volume increased 4% year over year to €603.5 billion, while net revenue increased 12% to €16.0 million.
Lastly for Clearstream, overnight customer cash deposits reached €12.3 billion, a 7% increase, though when not including assets restricted by EU and U.S. sanctions, customer cash deposits totaled €11.0 billion, a nearly 9% increase when counting last year’s sanctions too. Due to low interest rates, however, net interest income from Clearstream’s banking business declined by 7% year over year to €10.4 million.
For the Market Data + Services segment, which includes a variety of trading data and IT offerings, net revenue rose by 4.1% year over year to €95.4 million. In particular, this segment saw 14.4% revenue growth in its index business area via its subsidiary STOXX, which generates revenue from calculating and marketing indices and benchmarks.
On the negative side, factors such as economic fragility in the euro zone, regulatory uncertainty, low inflation, low interest rates and low volatility hurt trading revenues, says Deutsche Börse, as the Eurex segment, which constitutes the company’s derivatives business, saw net revenue fall 9.6% year over year to €182.9 million.
Similar factors kept revenue fairly stagnate for Xetra, the cash market segment (€37.3 million this quarter compared to €37.5 million last year, a 0.5% drop). Trading volume on the Xetra platform fell by 9% overall, while revenue for trading and equity CCP activity fell around 6% and 9% respectively this quarter. Yet other revenue, such as from listings, largely offset losses within the segment.
While net revenue declined for the company overall, operating expenses increased by 4.4%, due in part to the company’s investments in growth initiatives. Future operating expenses are also in the pipeline, such as the acquisition of Citco’s hedge fund custody processing business, which is expected to close in September, as well as Deutsche Börse’s expansion into Asia, with projects such as developing a clearinghouse in Singapore.
Clearstream Leads the Way for Deutsche Börse's Earnings
Due to a variety of difficult market conditions, Deutsche Börse Group’s cash and derivatives market segments struggled in the second quarter of 2014, though positive results in the post-trade as well as market data and services businesses offset some of the losses, as net revenue (total revenue minus volume-related costs) fell 2% year over year to €488.4 million.