BRUSSELS, April 30, 2024 /PRNewswire/ -- Results for the first quarter ending 31 March 2024
Financial highlights (excluding impacts from Russian sanctions)
- On an underlying basis, business income reached €423 million, an increase of 2% year-on-year. When excluding an exceptional billing adjustment, underlying business income would have increased by 3% compared to last year.
- Quarterly underlying interest income increased by 19% to €283 million driven by prevailing interest rates.
- Underlying operating expenses increased by 5% to €321 million. Following a step-up in investment in 2023 to support our strategic ambition to enhance digital capabilities and IT infrastructure, expenses growth is trending back towards the 'through-the-cycle' target of 4-6% on a full-year basis.
- Underlying operating profit increased by 12% to €385 million and underlying net profit increased by 13% to €289 million, supported by a very robust business performance and helped by sustained high interest rates.
- Underlying earnings per share rose by 13% to €91.8 per share, reflecting the continued increase in net profit.
- Underlying EBITDA margin increased by 1.7 percentage points to 58.7% on year-on-year basis.
- The impacts of Russian sanctions are highlighted in a dedicated section at the end of this press release.
Euroclear Holding |
||||||||
(€ m) |
Q1 2023 |
Russian |
Q1 2023 Underlying |
Q1 2024 |
Russian |
Q1 2024 Underlying |
Underlying vs 2023 |
|
Operating income |
1,380 |
729 |
651 |
2,289 |
1,583 |
706 |
55 |
8 % |
Business income |
409 |
-5 |
414 |
416 |
-6 |
423 |
9 |
2 % |
Interest, banking & other income |
971 |
734 |
237 |
1,872 |
1,589 |
283 |
46 |
19 % |
Operating expenses |
-315 |
-9 |
-307 |
-338 |
-17 |
-321 |
-14 |
-5 % |
Operating profit before Impairment |
1,065 |
720 |
344 |
1,951 |
1,566 |
385 |
41 |
12 % |
Impairment |
-2 |
-1 |
-1 |
-2 |
0 |
-2 |
-1 |
|
Pre-tax profit |
1,063 |
720 |
343 |
1,949 |
1,566 |
383 |
39 |
11 % |
Tax |
-267 |
-180 |
-87 |
-485 |
-391 |
-94 |
-7 |
-8 % |
Net profit |
796 |
540 |
256 |
1,463 |
1,174 |
289 |
33 |
13 % |
EPS |
81.4 |
91.8 |
||||||
Business income operating margin |
25.9 % |
24.1 % |
||||||
EBITDA margin |
57 % |
58.7 % |
Lieve Mostrey, Chief Executive Officer of Euroclear Group, commented:
"Euroclear continues to perform extremely well, as we achieved another very strong quarter and delivered on our strategy, particularly in the funds business. We made significant progress in developing Euroclear FundsPlace by teaming up with new partners such as iCapital or Spuerkeess and making a strategic investment in blockchain-based funds marketplace IZNES. Providing access to a wide range of funds services, Euroclear FundsPlace delivers risk-mitigation, automation and efficiency at scale to a growing number of clients.
In this first quarter of 2024, the Russian sanctions and countermeasures continued to have a material impact on our operations. We are closely following the discussions at EU level about the use of profits generated by the Russian immobilised assets. Our teams continue to respond well to this unprecedented situation and remain focused on minimising the legal, operational, financial and reputational risks for our company and our clients while maintaining normal business operations.
As Valérie Urbain is now taking over as CEO of Euroclear, I feel proud and honoured to have been able to lead Euroclear's growth journey and further reinforce our position as trusted financial market infrastructure. The dedication of our colleagues across all locations, the support of all Euroclear stakeholders – including the Board, our shareholders, customers and partners – have been critical to our success. I am very grateful to everyone involved and will keep Euroclear close to my heart. I know that I leave the company in safe and capable hands."
Business performance
The key operating metrics (end of period unless stated otherwise) demonstrate a strong business performance during the period.
Q1 2023 |
Q1 2024 |
YoY evolution |
3-year CAGR |
|
Assets under custody |
€36.6 trillion |
€39.1 trillion |
+7 % |
+4.6 % |
Number of transactions |
79.1 million |
80.6 million |
+2 % |
1.9 % |
Turnover |
€281 trillion |
€274 trillion |
-3 % |
+4.7 % |
Fund assets under custody |
€2.9 trillion |
€3.3 trillion |
+13 % |
+6.5 % |
Collateral Highway |
€1.75 trillion |
€1.8 trillion |
+3 % |
+2.6 % |
Underlying cash deposits (average) |
€25.1 billion |
€22.3 billion |
-11 % |
+2.3 % |
With the continued increase in equity market valuations coupled with robust results in fixed income, assets under custody have reached a new record at €39.1 trillion (+7%), growing for the sixth quarter in a row.
Funds assets under custody were boosted by ETF growth and higher stock markets valuations and reached an all-time record level.
The Collateral Highway outstanding progressively recovered thanks to favourable market conditions characterised by the stabilisation of monetary policy and the prospect of lower interest rates in the coming quarters.
Milestones in global funds strategy
The first quarter of 2024 was marked by a number of achievements in developing Euroclear's funds business, a key pilar in the company's strategy. Euroclear FundsPlace offers fund management companies, banks, institutional investors and custodians a single point of access to more than 250,000 funds.
In Q1 2024, Euroclear acquired a stake in IZNES, a pan-European funds marketplace based on blockchain technology[1]. Through this strategic partnership, Euroclear will complement its funds services on the French market and beyond and continue to support the development of innovative funds distribution models.
Banque et Caisse d'Epargne de l'Etat Luxembourg (Spuerkeess) has announced in February 2024 that it will be moving the majority of its fund portfolio to Euroclear FundsPlace in order to centralise the distribution and execution services of its funds. Euroclear's funds platform will manage the lion's share of Spuerkeess' portfolio from now on and collect trailer fees on external custodians as well.
Euroclear also announced a partnership with global fintech platform iCapital. Euroclear's clients will gain enhanced access to a broader range of alternative investments, including private equity, private credit, real estate, infrastructure, and hedge funds. The iCapital funds available on iCapital Marketplace will complement and expand Euroclear FundsPlace's current offerings.
Euroclear hosted its first major funds-dedicated conference – Euroclear FundsCo – in London on 26 March. This inaugural Euroclear funds event brought together more than 200 senior representatives from across the funds industry to discuss future global trends.
Euroclear's open architecture helps streamline collateral management Euroclear's international Central Securities Depository, Euroclear Bank, has become an eligible securities collateral location of Eurex Clearing AG. Through this partnership, clients of Euroclear Bank and Eurex Clearing will be able to post collateral directly to Eurex Clearing with the ability to further optimise the pool of collateral held in Euroclear Bank. The service offering increases operational efficiency for market participants and streamlines the collateral management process. Eurex Clearing already uses Euroclear Bank as an eligible securities settlement location.
Russian sanctions
Financial impacts of the Russian assets in Q1 2024
- The Russian sanctions and countermeasures continue to have a significant impact on Euroclear's earnings, as €1.6 billion of the €1.9 billion interest income relate to Russian sanctioned assets.
- The sanctions and Russian countermeasures resulted in direct costs of €17 million and a loss of business income of €6 million.
- Euroclear's net profit related to the Central Bank of Russia's (CBR) immobilised assets as from 15 February amounts to €557 million and will be reported and retained separately.
Euroclear Holding |
|||||
(€ m) |
Q1 2023 |
o/w Russian |
Q1 2024 |
o/w Russian |
o/w |
Operating income |
1,380 |
729 |
2,289 |
1,583 |
746 |
Business income |
409 |
-5 |
416 |
-6 |
0 |
Interest, banking & other income |
971 |
734 |
1,872 |
1,589 |
746 |
Operating expenses |
-315 |
-9 |
-338 |
-17 |
-3 |
Operating profit before Impairment |
1,065 |
720 |
1,951 |
1,566 |
742 |
Impairment |
-2 |
-1 |
-2 |
0 |
0 |
Pre-tax profit |
1,063 |
720 |
1,949 |
1,566 |
742 |
Tax |
-267 |
-180 |
-485 |
-391 |
-186 |
Net profit |
796 |
540 |
1,463 |
1,174 |
557 |
Update on Russian sanctions and countermeasures
Russia's invasion of Ukraine resulted in market-wide application of international sanctions. Euroclear considers the application of international sanctions as a key priority. Therefore, well established processes are in place which have allowed the group to implement the sanctions while maintaining our normal course of business.
As a result of the sanctions, blocked coupon payments and redemptions owed to sanctioned entities continue to accumulate on Euroclear Bank's balance sheet. At the end of Q1 2024, Euroclear Bank's balance sheet totalled €199 billion, of which €159 billion relate to sanctioned Russian assets.
In line with Euroclear's Risk Appetite and Policies and as expected by the EU Capital Requirements Regulation, Euroclear's cash balances are re-invested to minimise risk and capital requirements. In the first quarter of 2024, interest arising on cash balances from Russian-sanctioned assets was approximately €1.6 billion. Such interest earnings are driven by the prevailing interest rates and the amount of cash balances that Euroclear is required to invest. Subject to Belgian corporate tax, these earnings generated almost €400 million tax revenue for the Belgian State. As such, future earnings will be influenced by the evolving interest rate environment.
Effective 15 February 2024, the EU Council adopted a Regulation[2] providing for an obligation for Central Securities Depositories holding reserves and assets of the Central Bank of Russia[3] to apply specific rules in relation to the cash balances accumulating due to restrictive measures. These central securities depositories, including Euroclear, should account for and manage such extraordinary cash balances separately from their other activities, should keep separate the net profit generated and should not dispose of these ensuing net profits (e.g. in the form of dividends to shareholders). Euroclear has since the imposition of sanctions reported the profitability separately and now, in addition, Euroclear is reporting separately the profitability related to the Central Bank of Russia's immobilised assets as from 15 February 2024 – as disclosed in the table above.
Euroclear continues to act prudently and to further strengthen its capital by retaining Russian sanction related profits as a buffer against current and future risks. There are still many unknown risks given the current external climate and how it could evolve.
Various parties in Russia contest the consequences of the application of sanctions, with a significant number of legal proceedings ongoing, almost exclusively in Russian courts. The impact of the lawsuits on Euroclear is uncertain but the probability of unfavourable rulings is high since Russia does not recognise the international sanctions. Euroclear will continue to defend itself against all legal claims.
Euroclear notes that various options to use profits generated by sanctioned amounts held by financial institutions, including Euroclear, for the financing of Ukraine are being considered. Euroclear is focused on minimising potential legal, financial and operational risks that may arise for itself and its clients from the implementation of any proposals made or measures taken, while complying with its obligations.
Annexes
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Euroclear Bank and Euroclear Investments are the two group issuing entities. The summary income statements and financial positions at Q1 2024 for both entities are shown below.
Figures in Million of EUR |
Q1 2024 |
Q1 2023 |
Variance |
|||
Euroclear Bank Income Statement (BE GAAP) |
||||||
Net interest income |
1,875.3 |
970.0 |
905.3 |
|||
Net fee and commission income |
271.4 |
270.5 |
0.9 |
|||
Other income |
-3.6 |
5.8 |
-9.4 |
|||
Total operating income |
2,143.1 |
1,246.3 |
896.8 |
|||
Administrative expenses |
-234.5 |
-200.5 |
-34.0 |
|||
Operating profit before impairment and taxation |
1,908.6 |
1,045.8 |
862.8 |
|||
Result for the period |
1,430.9 |
782.1 |
648.7 |
|||
Euroclear Bank Statement of Financial Position |
||||||
Shareholders' equity |
7,466.7 |
3,384.2 |
4,082.4 |
|||
Debt securities issued and funds borrowed (incl. subordinated debt) |
4,474.1 |
5,503.2 |
-1,029.1 |
|||
Total assets |
198,758.0 |
140,460.8 |
58,297.2 |
Euroclear Investments Income Statement (BE GAAP) |
Q1 2024 |
Q1 2023 |
Variance |
|||||||||||||
Dividend |
0.0 |
0.0 |
0.0 |
|||||||||||||
Net gains/(losses) on financial assets & liabilities |
2.0 |
2.5 |
-0.5 |
|||||||||||||
Other income |
-0.2 |
-0.1 |
-0.1 |
|||||||||||||
Total operating income |
1.9 |
2.5 |
-0.6 |
|||||||||||||
Administrative expenses |
-0.3 |
-0.1 |
-0.2 |
|||||||||||||
Operating profit before impairment and taxation |
1.6 |
2.4 |
-0.8 |
|||||||||||||
Result for the period |
1.1 |
1.8 |
-0.7 |
|||||||||||||
Euroclear Investments Statement of Financial Position |
||||||||||||||||
Shareholders' equity |
700.5 |
668.2 |
32.4 |
|||||||||||||
Debt securities issued and funds borrowed |
1,663.5 |
1,664.5 |
-1.0 |
|||||||||||||
Total assets |
2,364.7 |
2,333.5 |
31.3 |
|||||||||||||
These figures are unaudited. The computation of application of article 1.8 of EU n°2024/576 is pending implementation of the final text and procedures which could still change the figures.
About Euroclear
Euroclear group is the financial industry's trusted provider of post trade services. Guided by its purpose, Euroclear innovates to bring safety, efficiency, and connections to financial markets for sustainable economic growth. Euroclear provides settlement and custody of domestic and cross-border securities for bonds, equities and derivatives, and investment funds. As a proven, resilient capital market infrastructure, Euroclear is committed to delivering risk-mitigation, automation, and efficiency at scale for its global client franchise. The Euroclear group comprises Euroclear Bank, the International CSD, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & International.
[1] The transaction is subject to customary closing conditions and regulatory approvals.
[2] Council Regulation (EU) 2024/576 of 12 February 2024 amending Regulation (EU) 833/2014
[3] With a total value of more than € 1 million
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