Deutsche Börse’s new chief executive, Theodor Weimer, sought to reassure investors after a turbulent year for the stock exchange operator by promising growth but no “revolution.” He categorically ruled out any big acquisition or merger and pledged to present his new strategy for growth at an investor conference in May.
In his first appearance at the annual earnings press conference, Mr. Weimer blamed cyclical factors such as low market volatility for the company’s failure to meet its target of 10 to 15 percent profit growth last year. Given these market conditions, the 6-percent growth in net profit to €857 million ($1.05 billion) was presentable, he said. For 2018, the company expects a 10-percent increase in profit.
The new CEO, who took office at the beginning of the year, was at pains to deflect attention from last year’s failed merger with the London Stock Exchange and the insider trading probe of his predecessor for share purchases in connection with those plans. After the grand opera of ex-CEO Carsten Kengeter's departure, Mr. Weimer clearly sought to keep the "Drang" of pushing for growth without the "Sturm" of controversy and scandal.
We’re not looking for a revolution just for the sake of revolution. Theodor Weimer, CEO, Deutsche Börse
Nonetheless, many of the questions on Wednesday concerned the bonus that Mr. Kengeter might get because of the generous package he had negotiated in his contract. That bonus, which includes payment for “co-performance shares” that track the company’s stock, could conceivably be worth €30 million to €40 million.
Deutsche Börse CFO Gregor Pottmeyer, however, said that the company had put aside something less than €10 million to cover the eventual bonus payment. He noted that Mr. Kengeter was only three years into a five-year contract and referred any further questions to the board.
In the meantime, Handelsblatt sister publication Wirtschaftswoche reported that the Deutsche Börse board would not make any decision on Mr. Kengeter’s bonus until judicial authorities had completed their investigation of the insider trading charges.
For his part, Mr. Weimer said he sought no extra bonus deals and would not have accepted one if offered. His discussion with the board about his compensation lasted less than 10 minutes, he said.
It was all part of the new CEO’s effort to project an appearance of integrity to help repair the image of Deutsche Börse in the wake of the controversy surrounding Mr. Kengeter. Mr. Weimer, who was chief executive of the HypoVereinsbank in Munich before taking his new post, said the only Deutsche Börse shares he would acquire would be in the amount of his annual salary, €1.5 million, on a fixed date each year over the next three years in a transaction conducted by an external service.
Although he ruled out any big deals, Mr. Weimer did not exclude small or even medium-sized acquisitions. The company has a war chest of €1.3 billion for this purpose. “We are condemned to growth,” he said, because the nature of stock market business demands a critical mass. By the same token, he isn’t worried that Deutsche Börse itself could become a takeover target because German regulators could block any transaction involving the Frankfurt Stock Exchange.
Mr. Weimer sees derivatives clearing as a big opportunity for Deutsche Börse in the wake of Britain’s exit from the European Union as authorities have made it clear they want the bulk of that activity, now dominated by LCH in London, to be located within the EU. The German stock market operator hopes to capture 25 percent of the clearing for euro interest rate swaps, which runs to €1 trillion in notional daily volume.
Data and indexes are two other sectors with strong growth possibilities. In the future, the company will break out these segments, currently lumped together in a miscellaneous category. In 2017, for example, indexes accounted for 5 percent of net revenue of €2.5 billion and data for 6 percent.
Among other things, Deutsche Börse will restructure some indexes, integrating the TecDax companies, for instance, into the MDax of medium-sized companies as appropriate. Investors have mostly avoided TecDax and hardly any exchange-traded funds use it. The booming ETF market in general has enhanced the role of indexes.
For all his ambition, however, Mr. Weimer cautioned against any unreasonable expectations for his May presentation. “Don’t expect any big throws of the dice,” he said. “We’re not looking for a revolution just for the sake of revolution.”
Andreas Kröner is a Handelsblatt reporter in Frankfurt. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the authors: [email protected] and [email protected].