By Ulrike Dauer
FRANKFURT--German exchange operator Deutsche Boerse AG (DB1.XE)
is mulling a new round of sweeping cost cuts to counter weaker
trading volumes that are expected to last in the coming years, due
to tougher regulatory requirements for banks, several people
familiar with the matter told The Wall Street Journal
Wednesday.
The scope of the cost-cut plans could be similar to a previous
program announced in 2010, when the exchange operator targeted
EUR150 million ($199.8 million) in cost cuts with the aim of
reaching that goal in 2013, one person familiar with the matter
said. Deutsche Boerse already reached that goal at the end of
2012.
There hasn't been a formal decision yet on the new cost cutting
plan and whether it could involve job cuts, but the exchange could
announce the plans in February, when it releases fourth-quarter and
2012 earnings and gives new targets, said one of the people
familiar with the matter.
The measures could involve shifting more jobs than previously
envisaged from Germany to lower-wage countries such as the Czech
Republic and Ireland, one of the people said. It could also include
job cuts. Under the previous plans, the company managed to reach
the job cuts without compulsory redundancies, by using measures
such as early retirement, natural attrition, and part-time
work.
A Deutsche Boerse spokesman declined to comment.
Global exchanges are currently suffering from slumping revenues,
which are in part due to investor inertia during the financial
crisis. In part, however, the thin trading volumes can be
attributed to a number of new regulations for banks and financial
markets that are currently being crafted and whose full impact will
only be felt in the coming years.
Amid slumping revenues, exchanges can either try to add scale by
mergers and acquisitions or by organic growth, or cost cuts. After
Deutsche Boerse's merger with NYSE Euronext (NYX) was blocked by
the European Commission early last year, it was forced to redefine
a standalone strategy, which now has to take an even stronger focus
on cutting costs. Deutsche Boerse has always had a tight grip on
costs; several years ago, the exchange operator already moved
outside Frankfurt to lower its annual tax rate.
At the end of October, when presenting third-quarter earnings,
Deutsche Boerse cautioned that its previous 2012 net revenue goal
was out of reach and that 2012 earnings before interest and
taxation will also fall short of the previous target, although it
didn't guide to a new EBIT goal. It said then that it expects 2012
net revenue of around EUR1.95 billion, down from the previous
target range of EUR2.15 billion to EUR2.3 billion. For 2013, it
forecast higher net revenues if markets weren't worsening.
Based on these assumptions, Chief Financial Officer Gregor
Pottmeyer told investors that the company didn't see the need for a
large-scale restructuring program, but that the company would have
to reconsider if revenues dropped another 10%.
Write to Ulrike Dauer at ulrike.dauer@wsj.com