BUSINESS
02/08/2012 06:14 EST | Updated 04/09/2012 05:12 EDT

TMX Group sees profits drop 21 per cent amid lower listing, trading volumes

TORONTO - TMX Group Inc. (TSX:X) says its profits dropped 21 per cent in a "challenging" fourth quarter amid equity market volatility that pushed many investors to the sidelines.

The operator of Canada's largest stock exchange said Wednesday that its net income fell to $52.7 million or 70 cents per common share in the fourth quarter of 2011. That was a decrease from $67 million or 90 cents per share in the same quarter a year earlier.

"It is clear that growing global economic uncertainty weighed on our financial results," said Thomas Kloet, CEO of TMX Group.

"In equity listing and trading ... we did feel the impact from the more pronounced global uncertainty in the fourth quarter of 2011."

While both listing and trading volumes were slightly higher compared to the third quarter, they were down significantly from the fourth quarter of 2010, Kloet said.

The operator of the Toronto Stock Exchange and TSX Venture exchange earns revenues from trades and new listings.

Revenue dropped seven per cent to $161.7 million from $174.1 million.

Analysts, on average, had been expecting earnings of 84 cents per share on $164 million in revenue, according to Thomson Analytics.

Trading volumes and values fell sharply in recent months, reducing revenues, as volatility and economic uncertainty pushed some investors out of equity markets. New listings also slowed as stock values dropped.

In addition, TMX booked higher costs in the fourth quarter as it continued to ramp up new technologies and add resources to generate future growth.

TMX Group's higher expenses included $5.7 million in pre-tax costs related to the proposed Maple Group acquisition.

Maple Group, a consortium of 13 financial institutions looking to take control of the owner of the Toronto Stock Exchange, said last week it was extending its takeover offer by about a month to Feb. 29.

"We continue to believe that the Maple transaction is good both for TMX Group and Canada's capital markets," Kloet said, adding that TMX will continue to work with Maple to pursue regulatory approval for the deal.

The group says it will keep extending the deadline until it receives a verdict from provincial and federal regulators, which are reviewing how the deal to amalgamate trading and clearing platforms would affect Canada's capital markets.

TMX Group's board now supports a $3.8-billion takeover offer 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 supported 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.

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.

"2011 was an exceptionally active year for our company," Kloet said.

The company opened new offices in London and Beijing last year.

TMX said it saw an 11 per cent increase in adjusted earnings per share, despite a two per cent drop in equity trading volumes from 2010.

Shares in the company dropped 19 cents to $41.71 in afternoon trading on the TSX.