Bull Bear Report Feb 08 2011

NYSE Reduced Staff Prior to Merger Talks, More Cuts Likely If Merger Approved

By kyle stock

NYSE Euronext Inc., in talks to merge with Deutsche Börse, shrunk the size of its staff in 2010, cuts that helped it beat analyst expectations at year-end.

More cuts will likely be coming if NYSE and Deutsche Börse strike a deal and regulators approve it, said Michael Wong, an analyst at Chicago-based research firm Morningstar Inc. who covers exchanges.

For the full year, the New York-based exchange trimmed compensation by 6%, matching a 6% drop in revenue. Its number of employees dropped 12% in 2010, from 3,367 to 2,968.

Chief financial officer Michael S. Geltzeiler said in a statement that the firm "continued to focus on reducing our fixed expense base."

The companies pledged to produce 300 million euros ($410 million) in cost savings if the merger goes through.

Wong said employment cuts would most likely hit tech staff and back-office operations, including accounting and finance.

Although Deutsche Börse has 3,500 employees, roughly one-fifth more than NYSE, it has a leaner workforce, according to Wong. The German firm would bring "cost discipline" to bear on its U.S.-based rival, he said.

In the first nine months of last year, Deutsche Börse earned profit of almost $190,000 per employee, compared to about $141,000 per worker at NYSE.

"NYSE has always had a fairly bloated cost structure," Wong said. "Given all of the acquisitions, there's so many legacy assets that they've been trying to consolidate over the years."

NYSE merged with ArcaEx in 2006, joined forces with Euronext the next year and bought the American Stock Exchange in 2008. The firm has trimmed staff aggressively for several years now, as it cut redundancies in its global platform and plugged in new trading and execution technology.

At the same time, Deutsche Börse has been growing. The firm added almost 800 workers from the end of 2006 through Sept. 30, a 28% increase.

The combination between NYSE and Deutsche Börse would create one of the world's largest share-and derivatives-trading platforms.

Profit at NYSE dropped 26% in the final three months of 2010 versus the year earlier period, from $151 million to $120 million, or $.46 per share, according to its earnings announcement this morning. Analysts had expected the company to post income of $.44 per share.

Write to Kyle Stock

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