Saxo Bank reports drastic revenue decline in the second half of 2010

March 6, 2011 - PRLog -- Saxo Bank released its full-year 2010 results at the end of last week, reporting that its profits tripled from 2009 to a record DKK 644 million (approximately $108 million) in its best-ever year. Behind the total-year numbers, however, was the fact that the vast majority of Saxo’s profits were earned in the first half of the year.

LeapRate analysis shows that Saxo Bank’s revenues from trading activities fell by 37% in the second half of 2010 from the first half, while profits fell by 82%. Comparing the decline at Saxo to other firms, we can see very mixed results.

(See http://www.leaprate.com/News.html for more details and charts).

Saxo Bank and FxPro, both Europe-based, saw drastic declines in trading volumes, by about 33% and 20% respectively. IG Group, based in the UK, saw volumes rise by nearly 25%. And the two largest US-based firms (where new regulations were introduced in Q4 limiting leverage to clients), FXCM and Gain Capital, actually saw volumes rise – FXCM by 3%, Gain by 29%!

These numbers do not at all appear intuitive, especially since it was the US that introduced leverage limitations – supposedly leading to lower trading volumes – not Europe.

We would welcome your comments on this phenomenon. We believe that possible explanations may include:
1)  The continental Europe market is maturing. Europe was always (and remains) the main market for Forex trading, both for retail online trading (30% of global volume, per our Online Forex Industry Report), as well as “offline” institutional and interbank trading (55% of global activity). European retail customers were first as well to begin online Forex trading, and as such it is no surprise that growth in the European market has matured and slowed first.
2)  The US firms have grown mainly via acquisition. While FXCM’s numbers were fairly flat between first and second half 2010 – still much better than the steep declines at certain Europe-based firms – Gain Capital’s growth can be ascribed mainly, in our opinion, to acquisitions it made in 2010 (see our Online Forex Industry Report for a comprehensive list of M&A activity in the sector dating back to 2005). Aside from large and announced acquisitions, we also believe that FXCM and Gain have been making a series of smaller acquisitions of firms and customers / assets in the US, as smaller firms find it harder to compete due to tighter regulations in the US, in particular the raising by the NFA of minimum capital in the US to $20 million.

We should note that we believe Saxo is indeed well positioned for the future, having in place a number of strategic White Label and similar agreements with leading financial and online firms worldwide, such as with Microsoft MSN, Citigroup, and most recently Barclays. We believe that Saxo is also one of the better managed firms in the sector, having been operated as a regulated commercial bank for the past decade. Saxo is one of the few Forex firms on LeapRate’s Approved List of Online Forex firms.

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