Trans-Atlantic stock exchange operator NYSE Euronext said Monday it recorded a $1.34 billion loss during the fourth quarter as it was forced to take a charge related to its 2007 acquisition of European exchange Euronext.
NYSE Euronext lost $1.34 billion, or $5.06 per share, during the fourth quarter, after a profit of $156 million, or 59 cents per share, during the same quarter a year earlier.
The exchange operator would have recorded a profit had it not been for the $1.59 billion write-down on goodwill left over from the 2007 combination. The write-down was due to collapsing equity markets during the final three months of 2008 as the global economic crisis grew.
NYSE Euronext was formed in a $9.96 billion deal that saw Euronext — which operates the Paris, Amsterdam, Brussels and Lisbon exchanges — combine with the U.S. exchange in 2007.
Michael Geltzeiler, the company's chief financial officer, said the write-down brings the value of the company in line with the lower earnings multiples that analysts and investors are assigning for stock exchange operators. The lower multiples come as equity markets have tumbled amid the ongoing economic turmoil.
NYSE Euronext reviews goodwill values every year during the fourth quarter and believes the write-down during the last quarter is sufficient to match the company's expected future cash flow, Geltzeiler said in an interview.
Excluding the goodwill charge, as well as expenses as it closed its acquisition of the American Stock Exchange and other special items, earnings were $137 million, or 52 cents per share during the quarter ended Dec. 31.
Analysts surveyed by Thomson Reuters, on average, forecast earnings of 56 cents per share for the quarter on revenue of $1.19 billion. Analysts estimates do not usually include special items such as the goodwill charge.
After falling short of analysts' expectations, shares of NYSE Euronext fell $1.19, or 5.2 percent, to close at $21.71.
NYSE Euronext's revenue rose to $1.22 billion from $1.1 billion during the same quarter a year earlier. Pro forma revenue, which excludes certain fees and nonrecurring items such as impairment charges and acquisition expenses, rose 21 percent to $1.18 billion in the fourth quarter.
Citi Investment Research analyst Donald Fandetti said revenue was below his expectations as list fees, derivative revenue and market data were also short of expectations. Those weaker-than-expected results though were offset by higher regulatory fees.
NYSE Euronext expects derivatives pricing to remain stable in 2009, but pricing in U.S. and European cash equities is expected to fall during the year.
Excluding the special charges, profitability still dwindled at NYSE Euronext because of increasing competition, which has reduced its market share.
"Competition is still just so fierce," said David Easthope, a senior analyst with research and consulting firm Celent. Easthope said particularly in U.S. equities trading, the pricing pressure in the market has made turning a profit "tougher and tougher."
NYSE's matched volume of NYSE-listed stocks fell to 43 percent during the fourth quarter, from 54.3 percent during the year-ago period.
Matched volume represents the share volume of NYSE-listed securities that are executed on an exchange's book as a percentage of total consolidated market volume.
Though the company declined to provide a specific 2009 outlook, NYSE Euronext is targeting improving matched volume throughout 2009, Geltzeiler said. The company is targeting a matched volume share of 50 percent for NYSE-listed stocks.
Easthope said that even if NYSE Euronext can bolster its market share and volume, pricing competition could minimize profit gains from that boost.
The company has been, and continues to roll out new products and pricing options in an attempt to boost volume, Geltzeiler said. One major initiative the exchange operator is undertaking is rolling all its markets onto a single platform. European cash markets operations were the first to migrate to a universal trading platform. Other exchanges will follow throughout the year, with the New York Stock Exchange and U.S. derivatives markets moving to the universal platform during the fourth quarter of 2009.
Derivatives trading revenue, which accounts for the largest share of NYSE Euronext's net sales, fell during the quarter as its European derivatives division saw a decline in revenue.
Futures and options contracts traded on Liffe — the group's European derivatives trading platform — rose 5 percent during the quarter to 3.7 million contracts. But revenue on European derivatives trading fell 20 percent to $146 million in the fourth quarter from $183 million a year earlier.
Overall derivatives revenue fell to $190 million from $220 million during the final quarter in 2007. Derivatives trading accounts for 22 percent of net revenue.
NYSE Euronext said it will halt share repurchases, but maintain its 30 cents per-share quarterly dividend as it tries to balance capital management amid the ongoing economic turmoil.
By maintaining the dividend, Fox-Pitt Kelton analyst Edward Ditmire said NYSE Euronext avoided the "most negative" outcome during the quarter.
For the full year, NYSE Euronext lost $738 million, or $2.78 per share. It earned $643 million, or $2.70 per share in 2007.
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AP Business Writer Greg Keller in Paris contributed to this report.
