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Economy, Foreign Exchange Investments Drop ICE, CME Profits

The global economic depression caught up with commodity exchange operators in late 2008 as evidenced by the 4Q2008 net income reductions reported by rivals Atlanta-based IntercontinentalExchange Inc. (ICE) and Chicago-based CME Group.

ICE posted net income of $48.9 million, or 67 cents/share, down from $64.7 million, or 90 cents/share, during 4Q2007. CME Group recorded 4Q2008 net income of $62 million, or 93 cents/share, down from $201 million, or $3.75/share, during 4Q2007.

The quarterly profit declines of 24% (ICE) and 69% (CME Group) were due largely to charges that each company accrued on foreign exchange investments. ICE, which operates regulated global exchanges and over-the-counter (OTC) markets, recorded a $16 million write-down related to its investment in the National Commodity and Derivatives Exchange of India. Global derivatives exchange CME Group, which primarily does business as the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (Nymex), took a charge of $275 million on its cross-equity investment in Brazilian exchange operator BM&F Bovespa SA.

The tough times also translated into workforce reductions at ICE, which said it expects headcount to decline between 5% and 7% during 1Q2009. The company had 795 employees at the end of 2008. ICE said it expects to incur a charge of $2 million to $3 million associated with the headcount reductions primarily in the first quarter. For the full year, ICE said headcount is expected to be flat to down 5% from current levels, excluding any personnel additions relating to merger and acquisition activity in 2009.

On the rosier side, ICE's consolidated revenues in 4Q2008 rose to a record $207 million, a 30% increase over 4Q2007 revenues of $159 million. CME Group's total revenues for 4Q2008 increased to $692 million from $529 million during 4Q2007.

ICE's full-year 2008 net income increased 25% to a record $301 million from $241 million in 2007, and diluted earnings per share for 2008 increased 23% to $4.17 from $3.39.

"We excelled in a challenging year by responding to the needs of customers, expanding the markets we serve and executing on our strategic and financial objectives," said ICE CEO Jeffrey C. Sprecher. "As we enter 2009, we again have a range of initiatives, market opportunities and plans for growth based on the strong global risk management infrastructure ICE has established. Extending further into the OTC markets by developing CDS [credit default swaps] clearing is just one initiative designed to leverage our infrastructure. While we anticipate another challenging year in the global markets, we believe we are well positioned to meet our customers' risk management needs amid volatility and change."

CME Group also saw the slumping economy's effects on business volume. Average daily trading volumes -- which include CME, CBOT and Nymex trading volumes -- dropped in 4Q2008 to 10.4 million contracts from 12.1 million during 4Q2007. Fourth quarter 2008 volume for all ICE futures exchanges -- which includes ICE Futures Europe, ICE Futures U.S. and ICE Futures Canada -- increased to 60 million contracts, which is a 22% increase compared with 4Q2007.

CME Group posted full-year 2008 net income of $715 million, or $12.13/share, up from $658 million, or $14.93/share for 2007.

"CME Group's revenue growth at a time of global recession highlights the value of our product diversity -- which includes benchmark contracts in every asset class -- to address customer needs under a variety of market conditions," said Terry Duffy, CME Group's executive chairman. "Given the recent market dislocations, we see opportunities to reach out to nontraditional users of futures products, extend our technology and sales efforts globally and cross-sell our products. While we are aware of the challenges still facing financial markets, we also are confident that our long-term growth prospects are strong and we will continue to execute our strategy to build on the opportunities ahead."

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