Bloomberg News

CME Group Jumps Most Since 2009 on Dividend Boost: Chicago Mover

February 03, 2012

Feb. 2 (Bloomberg) -- CME Group Inc., owner of the world’s largest futures market, rose the most in almost three years after it boosted its regular dividend 59 percent and introduced a special variable payout to return cash to shareholders.

CME Group raised its dividend to $2.23 a share and increased the payout target to 50 percent from 35 percent, the Chicago-based company said today. The company also said it will introduce a variable dividend to be paid in the first quarter that will be tied to the prior year’s operating results. That payment will be $3 a share for shareholders of record as of March 9.

“A hike in capital return should be a positive catalyst” for the company, Howard Chen, an analyst with Credit Suisse Group AG, said in a note to clients today.

CME Group rose 8.4 percent to $266.01. That’s the biggest percent gain since April 2009, according to data compiled by Bloomberg. The shares have dropped 16 percent over the past year.

CME Group’s fourth-quarter profit missed analyst estimates as trading volume slowed in the last months of 2011. Excluding a tax benefit the company received as an inducement to stay in Chicago and other items, profit was $236 million, or $3.55 a share, trailing the average estimate of $3.64 in a Bloomberg survey of 20 analysts. Daily futures and options volume in the quarter averaged 11.7 million contracts, down 2 percent from a year earlier, CME said last month.

Net Income

Including the tax benefit, net income climbed to $746 million, or $11.25 a share, from $196 million, or $2.93 a share, a year earlier, Chicago-based CME said today in a statement.

Futures contracts based on interest rates, the largest category of futures at the exchange, fell 15 percent to an average 4.7 million a day in the quarter, the company said last month. Equity indexes such as the Standard & Poor’s 500 Index were one area of growth for the company. They traded on average 3.1 million times a day in the quarter, up from 2.5 million a year earlier.

Volumes for January fell 5 percent from a year ago, CME Group said in a separate statement today. Interest-rate trading fell 2 percent, equity indexes dropped 13 percent and energy contracts rose 1 percent, the company said.

MF Failure

CME Group said the failure of the futures broker MF Global Holdings Ltd. cost it $30 million in the quarter. MF Global filed the eighth-largest U.S. bankruptcy on Oct. 31 after a record quarterly loss, credit downgrades and revelations of its $6.3 billion position in European sovereign debt that rattled investor confidence.

As much as $1.2 billion in MF Global customer money hasn’t been accounted for, with customers receiving 72 cents on the dollar so far for the capital they held with the broker. Customer money is required to be segregated and protected from losses related to futures brokerages, which didn’t happen as MF Global failed.

CME Group said in a separate statement today that it will create a $100 million fund to help protect U.S. customer money in the wake of MF Global, which “misused customer monies that should have been kept segregated.”

Farmers and ranchers will be eligible for up to $25,000 per account if losses occur because of the failure of a broker, CME Group said. Farming and ranching cooperatives will be eligible for up to $100,000 in loss protection.

‘Enhancing Protections’

“Many have been hurt by MF Global’s bankruptcy,” Terrence Duffy, CME Group executive chairman, said in the statement. “Though all the facts are not yet in, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level.”

Volatility in the Treasury market is at an eight-month low, with the Federal Reserve pledging last week to cap its target lending rate through 2014.

Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, fell on Jan. 31 to 72.1, the lowest level since May 31 and less than the five-year average of 111.8. A drop in volatility cuts investor demand to hedge interest-rate positions with futures offered by CME Group.

Volume for the CME’s ClearPort service, which guarantees swap contracts with its clearinghouse and generates the company’s highest fees per contract, jumped 20 percent in the quarter.

Falling Revenue

Revenue fell 3.5 percent to $737 million in the three months ended Dec. 31, from $763 million a year earlier, the company said.

Illinois lawmakers approved tax breaks for CME Group, Sears Holdings Corp. and other companies in December to persuade them not to move to other states.

Sears, which discussed a possible move with Ohio officials, and CME Group complained after lawmakers approved record income- tax increases to close about half of a budget deficit.

--With assistance from Tim Jones in Chicago. Editors: Dennis Fitzgerald, Shannon D. Harrington

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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