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UPDATE 2-ICE beats expectations amid integration of NYSE

John McCrank
Tuesday, 11 Feb 2014 | 1:07 PM ET

* Q4 EPS of $2, minus items, tops forecasts by 5 cents

* Shares up 0.9 pct around midday

* CEO is "absolutely indifferent" to NYSE market share

NEW YORK, Feb 11 (Reuters) - IntercontinentalExchange Group reported a fourth quarter loss on Tuesday because of onetime costs, including those related to its $11 billion purchase of the parent of the New York Stock Exchange, but expense control helped it beat expectations.

The exchange and clearing house operator posted a loss of $176 million, or $1.83 a diluted share, compared to a profit of $130 million, or $1.76 a diluted share, a year earlier.

Not including onetime costs - such as $131 million from the NYSE Euronext deal and a $190 million impairment charge on an investment in Brazil - ICE earned $2 a share, topping average estimates by 5 cents, according to Thomson Reuters I/B/E/S.

Shares of ICE were up 0.9 percent at $213.96 on Tuesday around midday.

ICE closed the NYSE deal in November, giving it an entry into the interest rate futures business through control of Liffe, Europe's No. 2 derivatives market.

The deal also marked the Atlanta-based company's first foray into equities, through ownership of the Big Board, and through European stock market operator Euronext, which ICE said it still plans to spin off in an initial public offering before the end of June.

MARKET SHARE

The New York Stock Exchange began with an agreement in 1792 under a buttonwood tree on Wall Street. It enjoyed a near monopoly on matching buyers and sellers of U.S. stocks for much of the time since then, but in recent decades new competitors have chipped away at its market share, which last month stood at 20.58 percent. BATS Global Markets had 20.54 percent, and Nasdaq OMX Group had 20.02 percent, according to BATS' data.

ICE Chief Executive Jeffrey Sprecher said he is "absolutely indifferent" to NYSE's market share and that he is more concerned with providing quality services and maximizing shareholder value.

"Our strategy around here has never been to run the business for market share or bragging rights," Sprecher, who has been a vocal critic of the way U.S. stock markets operate, said on a call with analysts.

One of his main issues has been the large rebates on trading fees many stock exchanges, including NYSE, offer to attract order flow, which he has said gives incentives to brokers to act in ways not always in the best interests of their clients.

"It is very easy to be the market share leader in that space if one chooses to want to be that. You can change your rate structure and almost instantaneously the order routing algorithms will give you market share," said Sprecher, who started out in the energy markets.

He said his team has been "learning a lot" about the equity markets since November, and that so far, it has been a calculated decision not to focus on building market share.

FINANCIALS

Revenue grew to $612 million from $324 million a year earlier, boosted in part by transaction and clearing-fee revenues on the back of the NYSE deal. Analysts had expected revenue of $620 million.

The shortfall in revenues was mainly caused by lower-than expected transaction fees, said Alex Kramm, an analyst with UBS. He said that was offset by lower-than-expected adjusted operating expenses of $316 million.

"We believe 4Q results are largely a sideshow as the focus should be on the integration of NYSE Euronext," Kramm said in a note to clients.

Atlanta-based ICE said it expects to reach 70 percent of its $500 million target for savings from the NYSE acquisition on a run-rate basis by the end of the year.

ICE declared a dividend of 65 cents per share for the first quarter of 2014 with a record date of March 17, 2014 and a payment date of March 31, 2014.