After years of asking investors for patience, exchange operator NYSE Euronext says 2011 will be the year that things finally come together.
The Big Board parent is banking on a nascent U.S. futures business, hefty investments in technology, and an economic rebound to reverse a decline in global trading that drove its fourth-quarter profits down 21 percent.
Chief Executive Duncan Niederauer, speaking on a conference call with analysts and media, said 2011 should provide a better environment for doing business, citing a return of investor confidence and healthier corporate balance sheets.
The fourth-quarter results, reported Tuesday, narrowly beat analysts' expectations and the company's shares slipped, underlining some of the possible pitfalls ahead as NYSE Euronext heads into uncharted terrain.
The biggest wild card is probably the economic activity in Europe, and also volatility, said Chris Allen, analyst at Evercore Partners. It's the slow economic activity and slow volatility world that would be the worst case scenario from a trading perspective.
NYSE Euronext's full-year profit, after dropping 31 percent in 2009, rose 3 percent in 2010. It is expected to rise 19 percent in 2011 and 18 percent in 2012, according to Thomson Reuters I/B/E/S.
If people have been impatient waiting for the progress, now we're starting to see some of that, said Allen. The real big payoff will be in 2011 and into 2012.
The transatlantic exchange group said it expects trading to rebound as the global economy recovers this year, and it projected slightly lower costs.
The company aims to tackle Chicago-based futures giant CME Group Inc head on in a matter of weeks with a new U.S. interest-rate futures exchange and clearinghouse, and hopes to attract more high-frequency trading (HFT) firms with new data centers near New York and London.
The initiatives should drive growth in 2011, NYSE Euronext said, and are part of its battle against trading rivals that have steadily eroded its dominant position in the core U.S. and European markets in recent years.
The company is at the tail end of combining several venues, data centers and asset classes that came together in the blockbuster 2007 merger of NYSE Group and Euronext.
Weak trading of U.S. stocks and European derivatives drove fourth-quarter profits down to $120 million from $151 million a year earlier. Revenue fell 4 percent to $613 million.
The company earned 46 cents per share, 3 cents above analysts' average forecast, according to I/B/E/S.
NYSE Euronext shares were off 1 percent at $33.41 in afternoon trade in New York on Tuesday, giving back some of Monday's gains. The Paris-based shares slid 1.4 percent to 24.18 euros.
A NEW LIFFE IS BORN
NYSE Liffe U.S., the rate futures market, took a crucial step toward launch when its clearinghouse, New York Portfolio Clearing (NYPC), won partial U.S. regulatory approval last month.
The company expects to get full approval later this month, and to fully launch in March, putting it in direct competition with the CME for the first time.
In coming years, profit growth will depend on whether NYSE Euronext can capitalize on swaps market reforms on both sides of the Atlantic that push more swaps through clearinghouses and trading venues. Clearinghouses guarantee and shed light on trades.
NYSE Euronext was slow off the starting blocks as rivals began clearing swaps. On Tuesday, Niederauer said that over time, planned futures clearing businesses should allow it to take advantage of swaps market reforms.
The launch late last year of the new data centers, located in Mahwah, New Jersey, and Basildon, Essex, is also crucial, according to the exchange, as it allows the group to compete more effectively to attract HFTs.
NYSE Euronext in December traded 35 percent of NYSE-listed shares, down only slightly from a year earlier, suggesting it has managed to slow the erosion of market share to smaller, private rivals.
The firm also faces stiff competition in Europe, where the group's French, Dutch, Belgian and Portuguese exchanges traded 64.2 percent of Euronext stocks in December, down 6 percent from the previous year, according to Thomson Reuters data.
The exchange blamed slower trading in its flagship U.S. equity markets and London-based derivatives exchange Liffe for the 11.4 percent drop in quarterly trading revenues to $713 million from $805 million last year.
Chief U.S. rival Nasdaq OMX Group Inc beat quarterly profit expectations last week, while CME Group missed expectations.
(Reporting by Luke Jeffs in London and Jonathan Spicer in New York; editing by John Wallace)