The head of Canada’s largest stock exchange operator says he expects economic troubles in Europe will create a degree of financial uncertainty for TMX Group (TSX:X) over the short term.
Chief executive officer Thomas Kloet told investors on a conference call Tuesday that executives are making efforts to minimize any impact that the European debt crisis will have on the exchange operator, which is in the midst of completing approvals for a $3.8-billion takeover by the Maple Group consortium.
TMX board backs Maple takeover bid
“Our team continues to work hard on business development,” Kloet said, noting that he’s involved in discussions with numerous companies that are weighing the possibility of listing on the Canadian market.
“Over the longer run, and if… Europe gets on a stronger footing, we think companies will continue to look at the public markets as an excellent way to raise capital.”
Canadian markets have been shaken by the same economic turbulence that has rattled markets around the globe, but the TMX Group still managed to post a 21% increase in third-quarter profit, helped by stronger derivatives trading and listing and information services.
The firm said profits were $67 million, or 90 cents per share, in the three months, compared with a net gain of $55.2 million in the same quarter last year, or 74 cents per share. On an adjusted basis, earnings were 92 cents per share, up from 74 cents.
The results came as the S&P/TSX composite index, the main index, has tumbled about 13% from its highs of the year, hitting its year-low on Oct. 4, just after the end of the quarter.
Kloet acknowledged that there has been “some volatility in the marketplace,” but that the company’s performance this year demonstrates the operational strength of its businesses in spite of the global markets.
Revenue in the quarter was $167.8 million, up 15% from the third quarter of 2010.
TMX Group attributed the gain in net income to higher revenue from derivative markets trading and transaction clearing services. Issuer services and foreign exchange gains on U.S. dollar accounts also helped offset higher compensation and benefits expenses.
The higher revenue also offset the $2.4 million of costs related to proposed mergers with London Stock Exchange Group and the Maple Group.
“I think the results that you see in our financial statements today are reflective of the investments that we’ve made over the past three years,” he said.
“We’re pleased with our continued effort to improve our equity markets, particularly our cash trading businesses.”
TMX Group’s board recently announced it now supports the initially hostile $3.8-billion bid from Maple Group, a 13-member consortium comprised of several Canadian banks, pension funds, investment firms and a life insurance company.
The TMX board had originally backed a merger proposal with the London Stock Exchange Group and dismissed the Maple Group offer over a number of debt, competition and regulatory concerns.
But after the LSE deal failed to gain enough shareholder support in the face of the richer Maple bid this summer, the board turned its attention to the Maple offer.
The two sides had been in talks for nearly four months before they announced Oct. 30 they had come to terms.
“We are in this deal with both feet and we intend to work hard with our colleagues at Maple to get approval on this deal,” Kloet said.
Maple needs regulatory approvals to merge the owner of the Toronto Stock Exchange with the alternative Alpha Trading System, and clearing and depository firm CDS Inc.
Alpha and CDS are owned by the major players in the Canadian securities industry, several of which are part of the consortium.