Clearstream鈥檚 repo and tri-party collateral revenues dip in Q2
29 July 2021 US
Image: stock.adobe.com/Kevin_McGovern
Average outstanding volumes in Clearstream鈥檚 collateral management and securities lending business contracted by around 3 per cent during Q2 2021, according to Deutsche B枚rse Group鈥檚 Q2 results.
Over the quarter, collateral management revenues dropped from 鈧�20.3m to 鈧�20.0m, while revenue from tri-party services declined from 鈧�5.9m to 鈧�5.8m.
While net revenue across its repo and tri-party collateral business lines is directly related to the volumes outstanding, central bank money market measures continue to generate substantial liquidity across the market and this is putting pressure on lending fees, the company explained.
However, Clearstream has offset the decline in volumes by winning new customers to its repo and tri-party business, thereby holding net revenue for this business area flat compared with the equivalent period in 2020.
For its custody and settlement business, Clearstream indicates that new issuance across corporate and public sector fixed income drove an increase in assets under custody across its CSD and ICSD businesses, delivering a 4 per cent QoQ rise in aggregate custody revenues to 鈧�110.8m (for the period 1 April to 30 June).
However, settlement revenues declined by 6 per cent to 鈧�28.0m over the period.
Net interest income from Clearstream鈥檚 banking activities dropped sharply, falling 52 per cent QoQ to 鈧�11.9m as a result of lower average cash deposits across all currencies in the banking business.
This was influential, the company says, in explaining a 5 per cent QoQ decline in Clearstream鈥檚 net revenue during Q2, with EBITDA falling 13 per cent.
For the first half of year, Clearstream鈥檚 revenue from collateral management activities (repo and tri-party collateral services) dipped from 鈧�39.9 m to 鈧�39.1m.
Clearstream鈥檚 parent company, Deutsche B枚rse Group, reported a 13 per cent rise in net revenue during the second quarter to 鈧�881.7m. DBG describes how a cyclical decline in net revenue was offset partially by strong growth in Clearstream鈥檚 Investment Funds Services (IFS) division and M&A-related growth driven by the purchase of Institutional Shareholder Services (ISS) and UBS Fondcenter.
The Group鈥檚 operating expenses rose 12 per cent QoQ to 鈧�383.2m, an increase that the company attributes largely to its recent M&A activity.
EBITDA climbed by 18 per cent to 鈧�518m for the period, with the Group鈥檚 net income rising 21 per cent QoQ to 鈧�322.5m.
In the Eurex segment, net revenue declined by 10 per cent in the second quarter, mainly due to lower trading in equity index derivatives. EBITDA for the segment contracted 16 per cent, despite a slight reduction in operating costs.
The company says that trading in equity derivatives contract volumes fell by 3 per cent YoY and lower market volatility dictated that collateral posted for trading in financial derivatives also declined, resulting in lower net revenues.
However, clearing for interest rate derivatives performed strongly during Q2, with outstanding notional volume at the end of the reporting period up 19 per cent YTD at 鈧�22.5 trillion. This accounts for a 22 per cent share of OTC interest rate derivatives denominated in euros, according to Eurex Clearing.
Commenting on the results, Deutsche B枚rse Group chief financial officer Gregor Pottmeyer, says: 鈥淓specially in a cyclically challenging market environment like the second quarter of 2021, the importance of M&A growth becomes clear and confirms our strategy. Also, our minority investments are of growing relevance for our business. So far we remain confident of achieving our growth targets for 2021.鈥�
Deutsche B枚rse Group completed a number of significant acquisitions during the first half of 2021. In February, it finalised its purchase of an 81 per cent stake in investment communication, governance and ESG specialist Institutional Shareholder Services (ISS).
In June, Clearstream completed acquisition of the remaining 48.8 per cent of shares in Clearstream Fund Centre from UBS that it did not already own. As a result, it has become sole owner of the Zurich-based fund distribution platform that was known as UBS Fondcenter prior to acquisition.
On 29 June 2021, Deutsche B枚rse Group signed a binding contract to acquire Crypto Finance, a Zurich-based digital asset specialist offering trading, custody and investment services for crypto and digital assets. Through this transaction, DBG will take ownership of two-thirds of outstanding shares in this fintech company.
Over the quarter, collateral management revenues dropped from 鈧�20.3m to 鈧�20.0m, while revenue from tri-party services declined from 鈧�5.9m to 鈧�5.8m.
While net revenue across its repo and tri-party collateral business lines is directly related to the volumes outstanding, central bank money market measures continue to generate substantial liquidity across the market and this is putting pressure on lending fees, the company explained.
However, Clearstream has offset the decline in volumes by winning new customers to its repo and tri-party business, thereby holding net revenue for this business area flat compared with the equivalent period in 2020.
For its custody and settlement business, Clearstream indicates that new issuance across corporate and public sector fixed income drove an increase in assets under custody across its CSD and ICSD businesses, delivering a 4 per cent QoQ rise in aggregate custody revenues to 鈧�110.8m (for the period 1 April to 30 June).
However, settlement revenues declined by 6 per cent to 鈧�28.0m over the period.
Net interest income from Clearstream鈥檚 banking activities dropped sharply, falling 52 per cent QoQ to 鈧�11.9m as a result of lower average cash deposits across all currencies in the banking business.
This was influential, the company says, in explaining a 5 per cent QoQ decline in Clearstream鈥檚 net revenue during Q2, with EBITDA falling 13 per cent.
For the first half of year, Clearstream鈥檚 revenue from collateral management activities (repo and tri-party collateral services) dipped from 鈧�39.9 m to 鈧�39.1m.
Clearstream鈥檚 parent company, Deutsche B枚rse Group, reported a 13 per cent rise in net revenue during the second quarter to 鈧�881.7m. DBG describes how a cyclical decline in net revenue was offset partially by strong growth in Clearstream鈥檚 Investment Funds Services (IFS) division and M&A-related growth driven by the purchase of Institutional Shareholder Services (ISS) and UBS Fondcenter.
The Group鈥檚 operating expenses rose 12 per cent QoQ to 鈧�383.2m, an increase that the company attributes largely to its recent M&A activity.
EBITDA climbed by 18 per cent to 鈧�518m for the period, with the Group鈥檚 net income rising 21 per cent QoQ to 鈧�322.5m.
In the Eurex segment, net revenue declined by 10 per cent in the second quarter, mainly due to lower trading in equity index derivatives. EBITDA for the segment contracted 16 per cent, despite a slight reduction in operating costs.
The company says that trading in equity derivatives contract volumes fell by 3 per cent YoY and lower market volatility dictated that collateral posted for trading in financial derivatives also declined, resulting in lower net revenues.
However, clearing for interest rate derivatives performed strongly during Q2, with outstanding notional volume at the end of the reporting period up 19 per cent YTD at 鈧�22.5 trillion. This accounts for a 22 per cent share of OTC interest rate derivatives denominated in euros, according to Eurex Clearing.
Commenting on the results, Deutsche B枚rse Group chief financial officer Gregor Pottmeyer, says: 鈥淓specially in a cyclically challenging market environment like the second quarter of 2021, the importance of M&A growth becomes clear and confirms our strategy. Also, our minority investments are of growing relevance for our business. So far we remain confident of achieving our growth targets for 2021.鈥�
Deutsche B枚rse Group completed a number of significant acquisitions during the first half of 2021. In February, it finalised its purchase of an 81 per cent stake in investment communication, governance and ESG specialist Institutional Shareholder Services (ISS).
In June, Clearstream completed acquisition of the remaining 48.8 per cent of shares in Clearstream Fund Centre from UBS that it did not already own. As a result, it has become sole owner of the Zurich-based fund distribution platform that was known as UBS Fondcenter prior to acquisition.
On 29 June 2021, Deutsche B枚rse Group signed a binding contract to acquire Crypto Finance, a Zurich-based digital asset specialist offering trading, custody and investment services for crypto and digital assets. Through this transaction, DBG will take ownership of two-thirds of outstanding shares in this fintech company.
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