InterviewGregor Pottmeyer, CFO of Deutsche Börse AGChristopher Kalbhenn, Börsen-ZeitungIs Deutsche Börse a strong and powerful company even without NYSEEuronext?Yes. We wanted the merger to work, but it wasn’t a must for us. We were thinkingabout the potential that we could have exploited sooner if we joined forces. Evenwithout a partner to back it up, Deutsche Börse enjoys a solid, very strong position.2011 was our second-best financial year: we increased our revenue by 6%, our EBITby 13% and our earnings per share by 16%. Our business model, which covers theentire value chain, from trading through clearing and settlement to custody andmarket data, enjoys role-model status and is being copied by other stock exchanges.So in that respect, our model, which we intend to enhance further, gives us the edgeover our competitors.How does Deutsche Börse fare in a peer group comparison?It fares well. In terms of revenue, we’re the world’s number two after the US CMEGroup and we’re actually the number one if we look at net income. In terms of ourown market capitalisation, we’re the fourth-largest exchange organisation. Based onthis figure, which comes in at almost 10 billion euros, we are by far Europe’s largeststock exchange operator and the only one that is a truly global player. The marketcapitalisation of the next-largest exchange organisation in Europe, the LSE, is onlyone third as big as ours.Has the M&A issue been shelved for good?It’s important to remember that no major cross-border stock exchange transactionswere approved last year. In addition to the Deutsche Börse/NYSE transaction, theseinclude, for example, the attempted merger of the LSE with the Canadian TMX or theSingapore Stock Exchange with its Australian counterpart. None of these projectscame to fruition due to concerns raised by politicians and regulators. This means thatwe’re unlikely to see any major international stock exchange transactions over thenext year or two.What would you say your strategic priorities are now that the merger hasn’tbeen approved?We now focus on accelerated organic growth. This will see us concentrate on threemain areas: new products for unsecured, unregulated markets, a wider range oftechnology services and more business in growth regions, in particular in Asia.We will only be looking at opportunities for inorganic growth, i.e. company takeovers,on a small scale if we believe that a move would bring direct added value for ourcompany, our shareholders and our customers – as was the case last year when weacquired a majority stake in the Leipzig-based EEX power exchange. We will look atinteresting opportunities as and when they arise.
What role does regulation play for Deutsche Börse?A very important one – take EMIR, the new European Market InfrastructureRegulation for OTC derivatives, for example. This regulation provides forstandardised OTC derivatives to be cleared and collateralised via clearing houses inthe future. At the moment, the regulators believe that around 80% of the OTCderivatives market is suitable for standardisation. That’s a huge market that will beopening up and we are confident that, with our excellent risk management tools, wecan gain market share and volume in this segment.What makes you so confident?Thanks to our portfolio margining, we can offer the very highest capital efficiency.This means that deposited collateral can be put to optimum use, which is veryimportant in times of increased capital requirements. Because this enables marginoffset between OTC and our exchange-based derivatives, such as Bund or equityindex futures, less capital is required from market participants. Given the Basel IIIregulations, it is very important for banks to be able to allocate capital as efficiently aspossible. This makes our clearing house an attractive option. What is more, we arethe only company that offers real-time risk management. Other competitors only offeran item overview once or twice a day. This is another area in which we are wellahead of the game.What potential do you think is lurking in the problems associated withunsecured markets?That’s a question of trust in the fourth year since the outbreak of the financial crisis.Today, collateral management is of key importance. With Clearstream, we give ourcustomers an opportunity to optimise their collateral management. We helpcustomers to mobilise all forms of collateral for deposit, irrespective of the time zoneor asset class. We do this using a system that shows, on a fully automated basis,what collateral can be deposited efficiently for a specific transaction. We areexpanding this system by collaborating with other central securities depositories, forexample in Brazil, Australia, South Africa and Canada. But our offering is also ofinterest to custodian banks. We have entered into a cooperation agreement with BNPParibas, for instance. This is another area in which we can offer added value andgenerate growth.What are you planning as far as technology services are concerned?At the moment, we use this area primarily for our own needs. We also offer ourexpertise to customers who are interested. The Xetra trading system, for example, isused in Vienna, Dublin, Ljubljana and Sofia. To date, however, we haven’t beenpursuing the use of our expertise by externals as a systematic approach. We canoffer our service not only at trading level, but also in areas such as clearing,settlement and custody. This makes us attractive to other stock exchanges, centralsecurities depositories and to banks that we can offer services via our networks.
How important are the emerging markets, particularly those in Asia?We are in a good position in Asia, particularly with Clearstream. Clearstream isalready generating 20% of its international revenue with Asian customers and wewant to get this figure up to 30% by 2016. We also want to grow with Eurex in Asiaand we are focusing, among other things, on product cooperation moves in thissegment. By way of example, we are already offering trading in the Korean KOSPI200 option, the world‘s most active contract, during European and US trading hours.We also want to find new trading firms that use Eurex processes and products. Wecurrently have around 20 participants in Asia.You have announced that you will be investing 160 million euros in growthinitiatives this year. What are the focal points of your investment?We will be earmarking more than half for derivatives, because we believe that thisarea offers the greatest growth potential. 35% will go to Clearstream, while the rest isdestined for the cash market and our data business.What is your outlook for 2012?We expect to see revenue growth of between 5% and 12%. We also forecast costs ofless than 1.2 billion euros and expect our EBIT to be up in a year-on-yearcomparison to between 1.2 and 1.35 billion euros.What impact will the takeover of the 15% stake in Eurex previously held by theSIX Group have?The acquisition will allow us to generate additional revenue of around 110 millioneuros based on the 2011 figures. This will push our net income up by approximately60 million euros.In the past, the New York options exchange ISE has proven to be something ofa problem child due to hefty write-downs. How happy are you with the currentdevelopments?We are satisfied with the current developments. ISE increased its trading volume by4% and stabilised its market share last year. This was due, in particular, to the launchof the new Optimise trading system, which has brought massive improvements interms of speed and functionality. The system also means that we can launch newfunctions far more quickly, namely within the space of four weeks. Optimise hashelped to boost market acceptance of ISE again.And what do you think the future holds?It’s difficult to know what lies ahead, but that applies to the entire derivatives tradingsegment. In the first three months of this year, trading volumes for Eurex as a wholewere down by 16% and we’ll just have to wait and see how things develop. Onedecisive factor will be whether volatility starts to increase again. We believe that thiswill be the case over the next few quarters, which will help to boost the tradingvolume, too. We are still forecasting growth for this year. It’s also worth bearing inmind that the tough comparison, namely the prior-year quarter. And the picture was
already looking brighter in March, when the trading volume was up by 20% on thefirst two months of this year. Nevertheless, even the volume for March fell short of thevery high prior-year level.At Clearstream, assets held in custody in March were down slightly, namely by 2%,year-on-year, at 11.1 trillion. The service business, which includes collateralmanagement, securities lending and triparty repo, continued to go from strength tostrength in March, growing by a total of 8% on the prior-year quarter in Q1/2012.What risks do you believe are associated with regulation, such as the financialtransaction tax, in particular?In principle, we can understand what the political motivation is for wanting to involvethe financial services sector in the costs of the crisis. But the tax is not the right wayto go about it, because it distorts the market. It would have a negative impact ongrowth and would promote trading on non-transparent markets. If it does come intoforce, it has to be imposed across the EU to prevent business from moving tocountries that do not levy the financial transaction tax. We also need a holisticapproach, i.e. the tax has to target high-risk, OTC trading in particular.What consequences would the tax have for high-frequency trading and what doyou make of the concerns that politicians have raised in respect of ultra-high-speed stock exchange trading?High-frequency trading would suffer as a result of a financial transaction tax.Business would shift to jurisdictions that don’t want to introduce the tax, for exampleto London, Switzerland or Singapore. So it wouldn’t disappear – it would just move.But we believe that high-frequency traders provide liquidity. This means that theynarrow the bid-ask spreads and facilitate more attractive prices for our customers. Soa European market without high-frequency trading would be a bit worse off.What are the main points of your financial planning?As I mentioned earlier, we expect to see revenue growth of between 5% and 12%,costs of less than 1.2 billion euros and EBIT of between 1.2 and 1.35 billion euros.We will be ramping up our investments in growth initiatives from 120 to 160 millioneuros and our dividend per share will rise from 2.10 to 2.30 euros. There will also bea special distribution per share of 1 euro, allowing us to offer an attractive dividendyield of around 6-7%. We are also planning share buy-backs of up to 200 millioneuros in the second half of the year, bringing the total distribution amount to around800 million euros. We generally aim for a dividend payout ratio of 40% to 60%. Ifadditional cash is available and we don’t need it for investments that will add value,we will buy shares back.Why is the rating important to Deutsche Börse?We are one of the few DAX companies to have an AA rating, and our outlook hasbeen restored to stable now that the merger hasn’t been approved. We have assetsunder custody worth 11 trillion euros and a very large number of Asian clients. Theseclients, in particular, attach a great deal of importance to a very good rating. They feelsecure knowing that their assets are in safe hands. Because this makes the ratingdecisive for Clearstream, we aim to achieve an EBITDA-to-interest coverage ratio of
at least 16, which corresponds to an AA rating. In 2011, we had an interest coverageratio of 19, and we forecast a ratio between 19 and 21 for this year. So in thisrespect, we have stabilised our rating.Are Deutsche Börses efficiency measures on track?Yes. We approved a cost reduction programme worth 150 million euros in 2010, theaim being to implement it in full by 2013. We will actually hit this target this year,ahead of schedule. In 2011, we had already realised 130 million euros of theprogramme, with a further 20 million set to be realised this year. Our personnelmeasures were completed some time back, incidentally in a consistently amicableand socially acceptable manner, i.e. without compulsory redundancies. We have noplans for any new cost-cutting programmes at the moment. Rather, we are committedto ongoing, stable cost management. Incidentally, the launch of the new Eurextrading system will help to make us even more efficient.What about the development in the tax rate?The tax rate comes in at 26%, meaning that we have achieved our objective here,too. We have planned for a tax rate of 26% for this year as well.