Appetite for risk returns to derivatives, says MF Global
By Hal Weitzman in Chicago
Published: August 6 2009 12:50 | Last updated: August 6 2009 12:50
The appetite for risk has returned to derivatives trading, MF Global, the world’s biggest broker of exchange-listed futures and options, said on Thursday as it reported quarterly profits ahead of Wall Street expectations even as they dropped by two-thirds from last year.
The broker said it made a net loss of $33m or 27 cents per share in the three months to the end of June, compared to net income of $14.4m or 2 cents per share in the same period last year. However adjusted for extraordinary charges and excluding stock compensation, earnings before interest, tax, depreciation and amortisation was $31m, or 5 cents per share, slightly ahead of analysts’ average forecasts of 4 cents per share. Revenues in the quarter were $271.5m, down from $374.7m last year.
The economic crisis has led financial institutions to slash derivatives trading desks, resulting in slumping volumes at brokerages and exchanges. However, in recent months, listed futures and options volumes have shown some tentative positive signs.
In an interview with the FT, Bernard Dan, MF Global’s chief executive, noted that the company’s revenues were up sequentially, rising 6 per cent from the previous quarter, with exchange-traded volumes 11 per cent higher and revenue from Asia up 20 per cent.
“The macro-drivers in our industry are starting to stabilise,” Mr Dan said. “Risk aversion is abating, the banks have been taking more risk to drive their earnings and we’re seeing greater hedge-fund and asset-manager participation. Open interest in the last two quarters has gone up. More people are taking positions.”
Mr Dan pointed to healthy trading at the CME Group, the largest US futures exchange, in June. However, CME volumes dipped again last month, underlining concern that the derivatives industry faces a drawn-out and uncertain recovery.
Credit Suisse analysts wrote last week on MF Global: “We remain neutral rated given limited near-to intermediate term earnings power due to the headwinds of a weaker macro outlook, slower customer activity levels and the absolute low level of [interest] rates.”
Mr Dan agreed that the climate had been grim, but added: “In this atmosphere, I can only focus on what I can control. To beat expectations by a penny is a great result.”
As well as economic factors, lack of clarity over the emerging shape of post-crisis US financial regulation has also weighed on investor sentiment. In spite of the continuing uncertainty over how the debate in Washington will play out, the MF Global chief said most of the proposed changes to derivatives trading – such as mandating the central clearing of over-the-counter contracts – would end up benefiting the exchange-listed broker at the expense of the big banks that are the main dealers in the privately negotiated bilateral agreements.
Mr Dan said the results also showed how MF Global was successfully expanding away from its traditional focus as an exchange-traded interest-rate broker. The company has sought to benefit from the turmoil on Wall Street by hiring fixed-income staff, a strategy Mr Dan said was starting to show results. “It’s probably our most diverse quarter,” he said.
MF Global drew unwanted attention last year when a wheat trader at its Memphis office racked up $141m of losses in unauthorised trading in the largest trading scandal ever to hit agricultural commodity markets. The fall-out from the incident claimed the scalp of Kevin Davis, the company’s erstwhile chief executive, who bowed to investor demands to resign last October and was replaced by Mr Dan, a former chief executive of the Chicago Board of Trade.
Copyright The Financial Times Limited 2009
No comments:
Post a Comment