2nd UPDATE: ICE Sees Earnings Boost From CDS Clearing
May 05 2009 - 3:43PM
Dow Jones News
IntercontinentalExchange Inc. (ICE) said Tuesday its new credit
derivatives clearing platform will contribute to earnings this
year, news that helped send its shares soaring.
The Atlanta-based exchange operator in March was the first to
clear credit default swaps on its ICE Trust platform, effectively
guaranteeing the risky trades that contributed to turmoil at major
U.S. financial institutions last year.
In a quarterly earnings release, ICE said the service will bring
in revenue of $20 million to $30 million and expenses of $18
million to $24 million. The business is "already cash-accretive,"
CEO Jeff Sprecher said on a conference call with analysts.
ICE shares were up about 13% in recent trading, to $101.99, as
investors welcomed the details on the CDS clearing outlook and
better than expected results for the first quarter.
ICE had a "solid first quarter," Credit Suisse analyst Howard
Chen said in a note. "We believe the franchise is well positioned
to execute upon growth opportunities within less mature
exchange-traded asset classes" such as energy and credit.
The company opened the first U.S. clearinghouse for credit
derivatives earlier this year, and just last month began clearing
live credit-default swaps transactions, a key step toward
mitigating systemic risk in the $28 trillion market. Rival CME
Group Inc. (CME) is readying its own CDS clearing and trading
solution, but a launch date hasn't been set.
Sprecher said that after starting with clearing credit default
swap indexes, he expects ICE will eventually move into more
specialized contracts. But with credit markets still dysfunctional
after the past year's turmoil, standardizing swaps so they trade
like futures contracts remains far off, he said.
"People are trying to buy credit protection in the middle of a
credit hurricane," he said. "It's a complicated market."
In the first quarter, ICE posted income of $72.2 million, or 98
cents a share, down from $92.3 million, or $1.29 a share, a year
earlier. The latest results included $13 million in pretax charges
related to its acquisition of The Clearing Corp. and other
restructuring charges. Excluding items, earnings were $1.09 a
share.
Revenue increased 12% to $231.6 million, driven by new products
and strong volume in the futures segment.
Analysts polled by Thomson Reuters expected earnings of 95 cents
on revenue of $230 million.
On ICE Futures Europe, the company's energy exchange, revenue
rose 31% to $64 million, thanks to record trading volume. The gains
came despite choppy prices for crude and petroleum products.
Daily trading in Brent crude, an oil blend pumped from the North
Sea, rose 9% in the quarter from a year ago, while gasoil futures
volume rose 12%. West Texas Intermediate crude futures volume
declined 17% in the quarter, even as volume in the U.S. oil
benchmark on CME's New York Mercantile Exchange was roughly
flat.
Sprecher resuscitated a recent oil-market debate, saying market
participants tell ICE "that they're viewing Brent as the better
marker for global price of crude."
Average daily commissions on ICE's U.S. over-the-counter energy
market declined 16%, to $1.1 million, as natural gas prices plumbed
multiyear lows.
"Over the past several months, natural gas prices have declined
to levels not seen in several years. This, coupled with high
storage levels, has reduced the need for hedging by some
customers," said Scott Hill, ICE's chief financial officer.
-By Gregory Meyer, Dow Jones Newswires; 201-938-4377;
greg.meyer@dowjones.com