Regulation, low risk appetite drag on trading: Saxo Bank

Reuters News

9/25/2012 10:50:32 AM - Reuters News

By Mette Fraende and Ole Mikkelsen

COPENHAGEN (Reuters) - Denmark's Saxo Bank is finding that attracting record users to its online trading and investment services does not translate into bigger profit when market volatility is low and tighter regulation is crimping volumes.

"We have never had as many clients as we have today...but customers have never traded as little as they do now," co-founder and co-Chief Executive Kim Fournais told Reuters in an recent interview.

He blamed tougher capital requirements at banks and new limits on the ability of its clients to gear their positions by borrowing against assets.

Speaking in his glass corner office overlooking the sea in the wealthy Copenhagen suburb of Hellerup, Fournais said trading volumes in asset classes ranging from currencies and commodities to interest rates and stocks had fallen and the lower activity was often self-perpetuating.

Tougher competition and spread compression were also taking their toll on the online trading sector, he said.

"Lower risk appetite from clients and thereby falling trading volume simply means lower volatility," Fournais said.

"Market volatility for most asset classes was at a very low level (in the first half of this year) not seen since 2006 and 2008," Fournais said.

Fournais founded Saxo Bank with co-CEO Lars Seier Christensen in 1992.

Each owns 30 percent, private equity firm TPG Capital has 30 percent with small shareholders and employees holding the rest of the stock.

The bank , which has a stuffed bull, a stuffed bear, two Formula one cars and a real-size dinosaur skeleton on display at its headquarters, is among the top 30 foreign exchange banks based on volume and one of the biggest in retail forex trading.

The bank, whose rivals include FXCM Inc and Interactive Brokers Group Inc, has pushed assets under management to a high of 10 billion euros ($13 billion).

But its pretax profit fell to 75.6 million Danish crowns ($13.17 million) in the first six months of this year from 473.5 million in the same period last year, burdened by the market slowdown and hefty investment in new products and office openings.

The result did not deter the bank from celebrating its 20th anniversary in style earlier this month when it flew 1,000 employees to Cairo for a weekend visit.

The bank generates about 65 percent of total revenue from currencies and sees 10-15 billion euros going through on a good currency trading day. The average daily turnover in the world forex market is estimated at about $5 trillion.

WORLD EXPANSION

Saxo Bank earns just over 40 percent of its revenue from Western Europe and about a third from Asia. It opened an office in Warsaw last week and its next office overseas operation will launch in Istanbul.

It also recently opened offices in Johannesburg and plans to build future expansion on joint ventures, acquisitions and opening more of its own offices.

"We are looking for alliances with companies that can help us strengthen our product," Fournais said.

The bank last year entered into a joint venture with India's Lakshmi Mittal, Chief Executive of ArcelorMittal, the world's largest steelmaker, with the aim of getting more institutions to use its trading platforms and other services. ($1 = 0.7699 euros) ($1 = 5.7397 Danish crowns)

(Editing by David Cowell)