NYSE Euronext Reports Loss on Merger Writedown

NYSE Euronext, operator of the New York Stock Exchange, reported a quarterly loss Monday as it took a charge of $1.59 billion to write down the value of its trans-Atlantic merger due to the global market decline late last year.

Excluding the charge and other one-time items, NYSE Euronext reported a 20 percent profit drop, missing Wall Street estimates, as competition forced the company to cut prices and currency fluctuation further dented its business.

NYSE Euronext shares dropped over 10 percent to below 16 euros (approx. $22) in Paris and were down nearly 8 percent in morning trade on the New York Stock Exchange.

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The bourse, which has struggled to streamline a flurry of acquisitions, also said it would halt a share buyback program to preserve capital. It said it would maintain its quarterly dividend of 30 cents a share through 2009.

"With these two actions, we are attempting to strike the right balance between capital management and shareholder value,'' Chief Executive Duncan Niederauer said in a statement.

He said the fourth quarter was marked by "unprecedented market dislocation and uncertainty.''

Niederauer's predecessor, John Thain, steered the NYSE's takeover of European exchange group Euronext in 2007.

Niederauer took the reins at NYSE Euronext in December 2007 after the $14 billion deal was complete.

For the fourth quarter, NYSE Euronext posted a loss of $1.34 billion, or $5.06 per share, due to the big charge to adjust acquisition-related "goodwill and indefinite-lived intangible assets'' on its balance sheet.

Excluding one-time items, it earned $137 million, or 52 cents per share, down from $173 million, or 65 cents per share, a year earlier. Revenue grew 21 percent to $1.18 billion.

Analysts polled by Reuters Estimates expected, on average, a profit of 56 cents per share before one-time items on revenue of $1.33 billion.

Credit Suisse analyst Howard Chen said in a note to clients, "While we see material long-term earnings power in the NYSE Euronext franchise, we believe recent acquisitions and capital deployment efforts will continue to dampen near-term earnings power realization and prospects for share price outperformance.''

Currency Impact

A recent decline in the euro and British pound helped to shave $55 million from the New York-based company's European trading revenues, which are billed in local currencies.

NYSE Euronext said currency fluctuations reduced earnings by 7 cents a share, while planned investments and operating losses at its NYSE Amex U.S. equity unit cost it 6 cents a share.

Revenues were hurt by price cuts amid a frantic battle with rivals over market share. In November, the company announced a new pricing model, the Designated Market Maker, aimed at attracting liquidity. The model was adjusted last week after it led to negative spreads at the stock exchange operator. The adjustment takes effect March 1.

"While they are helping to stem some of their market losses, it's coming at a cost to them,'' said Patrick O'Shaughnessy, analyst at Raymond James and Associates.

He also said halting the share buyback program "shows that perhaps they have a relatively pessimistic outlook for 2009, and they're going to play a little more safe with their cash.''

The company benefited from higher trading volumes in the quarter, which included the steepest phase of the recent stock selloff. Volatile markets mean higher trading volumes, which generate fees for exchanges.

Revenue derived from cash trading jumped 43 percent from a year earlier.

Separately, the company said trading volumes in January were down 8.3 percent in the United States and down almost 30 percent in Europe as activity from financial institutions and individual traders lessened.

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