BRUSSELS, Oct. 26, 2023 /PRNewswire/ -- Euroclear's financial results for the first nine months of 2023
Financial highlights
- With an underlying business income of EUR 1.24 billion (+3% year-on-year), Euroclear continues to perform well thanks to its resilient business model.
- The high interest rates environment led to a sharp increase of net interest earnings, reaching over EUR 3.8 billion for the nine first months of the year, of which approx. EUR 3 billion relate to interests linked to Russian sanctions and countermeasures[1].
- Underlying net profit of EUR 822 million almost doubled, reflecting a strong business performance and continued growth of Euroclear's core business.
- Underlying operating expenses increased by 18% to EUR 956 million, of which EUR 25 million related to increased investment in Euroclear's growth strategy and business resilience. The impact of inflation on the group's workforce and technology costs accounted for an increase of EUR 49 million compared to 2022. By further strengthening its cost discipline, Euroclear expects its operating expenses will trend towards its 'through-the-cycle' target of 4-6% p.a. from 2024.
- Direct costs relating to the management of the implications of the Russian sanctions amounted to EUR 34 million (versus EUR 12 million in Q3 2022) due to the increasing complexity of the situation for Euroclear and its clients, as well an increase in legal expenses. Additionally, international sanctions and Russian countermeasures have resulted in a loss of business income of EUR 18 million.
- Euroclear achieved an underlying EBITDA margin of 57.5%, an increase of 10.3 percentage points compared to the 47.2% reported in Q3 2022.
- On an underlying basis, earnings per share rose by 96% to EUR 261.2 per share, reflecting the continued increase in net profit.
Lieve Mostrey, Chief Executive Officer of Euroclear Group, commented:
"Euroclear continues its growth trajectory, delivering a solid business performance in Q3 2023 supported by higher interest rate conditions. Despite the complexity of the management of the international sanctions on Russian assets, our diversified business model allows us to focus on supporting clients through these uncertain times, providing robust infrastructure, and fulfilling our duties as trusted Financial Market Infrastructure.
During the third quarter, we reached a significant milestone with the successful completion of the connections of Euroclear Bank and Euroclear Finland to the European Central Bank's Target2-Securities (T2S) settlement system. By offering users delivery-versus-payment settlement of securities and cash in euro and Danish krone central bank money, the connections to T2S will contribute to strengthening Europe's settlement landscape, in line with the EU Capital Market Union's objectives and Euroclear's purpose: connecting financial markets for sustainable economic growth."
Financial performance
Euroclear Holding
(€ m) |
YTD Q3 2022 |
Russian sanctions impacts |
YTD Q3 2022 Underlying |
YTD Q3 2023 |
Russian sanctions impacts |
YTD Q3 2023 Underlying |
Underlying |
|||
Operating income |
1,725 |
341 |
1,384 |
5,052 |
2,996 |
2,056 |
672 |
49 % |
||
Business income |
1,202 |
-6 |
1,208 |
1,226 |
-18 |
1,243 |
36 |
3 % |
||
Interest, banking & other income |
522 |
347 |
176 |
3,826 |
3,013 |
813 |
637 |
362 % |
||
Operating expenses |
-824 |
-12 |
-812 |
-991 |
-34 |
-956 |
-144 |
-18 % |
||
Operating profit before Impairment |
901 |
329 |
572 |
4,061 |
2,961 |
1,100 |
528 |
92 % |
||
Impairment |
-13 |
-1 |
-12 |
0 |
0 |
0 |
12 |
|||
Pre tax profit |
888 |
328 |
560 |
4,061 |
2,961 |
1,100 |
540 |
96 % |
||
Tax |
-221 |
-81 |
-140 |
-1,018 |
-740 |
-278 |
-138 |
-98 % |
||
Net profit |
667 |
247 |
419 |
3,043 |
2,221 |
822 |
403 |
96 % |
||
EPS |
211.9 |
133.3 |
966.8 |
261.2 |
||||||
Business income operating margin |
31.5 % |
32.8 % |
19.2 % |
23.1 % |
||||||
EBITDA margin (EBITDA /oper.income) |
57.0 % |
47.2 % |
82.0 % |
57.5 % |
||||||
Business performance remains robust
The key operating metrics demonstrate a stable business performance during the period. Following last year's record levels in transaction volumes driven by highly volatile markets, the number of transactions in Q3 2023 is 2% lower. With little change in equity market valuations, assets under custody and fund assets under custody have increased.
Collateral outstanding continues to be lower than the record 2022 levels as Central Bank policy normalisations resulted in greater availability of collateral. Meanwhile, UK financing was especially impacted by new rules implemented following the disruption in the UK GILT markets.
Q3 2023 |
YoY evolution |
3-year CAGR |
|
Assets under custody |
€37 trillion |
+6 % |
+5.6 % |
Number of transactions |
224 million |
-2 % |
+2.8 % |
Turnover |
€813.1 trillion |
+3 % |
+6 % |
Fund assets under custody |
€3 trillion |
+8.2 % |
+7.7 % |
Collateral highway |
€1.67 trillion |
-13 % |
+4.4 % |
Euroclear launches DLT solution for the issuance of digital securities
Euroclear recently announced the launch of its Digital Securities Issuance (D-SI) service, the first key milestone of the group's Digital Financial Market Infrastructure (D-FMI) strategy. The service enables the issuance, distribution and settlement of fully digital international securities - Digitally Native Notes (DNN) - on distributed ledger technology (DLT). The D-SI service operates as part of Euroclear's D-FMI DLT platform, which is connected to the traditional settlement platform of Euroclear for secondary market operations on DNN.
The inaugural DNN was issued by the World Bank, raising EUR 100 million to support its sustainable development activities.
A call for more industry collaboration to advance digital asset ecosystem
The benefits of the above-mentioned DLT innovation are highlighted in a recent paper on the state of the financial industry's digital asset evolution published by Euroclear, The Depository Trust & Clearing Corporation (DTCC) and Clearstream.
Through collaboration with the industry, the research identified digitalisation opportunities for global financial markets, which included reducing the costs of connectivity and enabling consistent operating standards across processes, platforms, and digital assets.
To read the full paper, go to Advancing the digital asset era, together - Euroclear
Euroclear Bank and Euroclear Finland connect to TARGET2-Securities (T2S) platform
Euroclear Bank and Euroclear Finland successfully completed the connection to the European Central Bank's Target2-Securities (T2S) settlement system. By joining T2S, both Euroclear's international CSD and Finnish CSD can offer their users delivery-versus-payment settlement of securities and cash in euro and Danish krone central bank money.
As a common settlement platform for Europe, T2S reduces European fragmentation and makes central bank money securities settlement more efficient by reducing risk and increasing liquidity, and by fostering a more attractive European capital marketplace.
Taking further step in making the Korean market Euroclearable
In line with its commitment to create an international ecosystem for growth, Euroclear Bank and the Korea Securities Depository took a further step in making the market Euroclearable by signing a CSD agreement to open an omnibus account on 28 August 2023. Building on key advancements in making Korean Treasury bonds (KTBs) accessible through Euroclear Bank, the link will allow international investors efficient post-trade access to KTBs.
Expanding Euroclear's funds service offering
Euroclear is committed to building a digital marketplace that caters to the entire funds' ecosystem. Building on its acquisitions of MFEX and Goji, Euroclear has continued to enhance its service offering in funds with the launch of a new service for private market funds. Leveraging Goji's capabilities and seamlessly integrated into the FundSettle platform, the new service complements Euroclear's existing money market, mutual and alternative fund offerings.
The launch of the new service also follows successful inclusion of MFEX's distribution and data services into the FundSettle platform and the launch of Euroclear Global Watch which provides compliance solutions to financial market participants, including the asset management industry. Euroclear now offers clients a comprehensive, one-stop solution across the full range of fund products, including ETFs, money market and mutual funds as well as alternative and private market funds.
Committed to increasing ESG maturity
Over the past years, there has been a significant increase in the need to communicate transparently to all stakeholder about ESG matters, whilst avoiding the risk of greenwashing. Euroclear has navigated this period by taking a number of steps to increase its ESG maturity, such as setting a net zero pathway, publishing an ESG Policy, increasing its scrutiny of its supply chain and setting wide-ranging KPIs. Euroclear has also positioned ESG (and Sustainable Finance) within its corporate strategy.
From a communications perspective, the group has already enhanced its Sustainability Reporting, taking advice from experts at PwC to build on existing GRI frameworks. Further efforts will be required to integrate the Annual and Sustainability reporting to comply with the Corporate Sustainability Reporting Directive.
Within its workplace, Euroclear aims to foster an inclusive, healthy, performant, and learning-orientated corporate culture. That's why Euroclear recently joined the World Economic Forum's Good Work Alliance, which commits to building a more resilient, equitable, inclusive, just, and human-centric future of work.
Shareholder evolution
In recent years, Euroclear's shareholder base has been transitioning from its traditional "user-owned" model to include a greater proportion of long-term institutional investors. In the third quarter, the group welcomed New Zealand Super Fund and Novo Holdings as new shareholders, each acquiring 4.99% and 2.58% respectively.
The long-term investment vision and commitment of both New Zealand Super Fund and Novo Holdings strengthen Euroclear's position as a neutral, open financial market infrastructure. Such stable, long-term capital is ideally suited to support Euroclear's growth strategy, focused on delivering value to its stakeholders, including clients, employees, shareholders, and society.
Update on Russian sanctions and countermeasures
Russia's invasion of Ukraine resulted in market-wide application of international sanctions, which have had a material impact on Euroclear. Since considerable uncertainties persist, Euroclear considers it necessary to separate the estimated sanction-related earnings from the underlying financial results when assessing the company's performance and resources.
Well-established processes are in place which allow the group to implement the sanctions, while maintaining the normal course of business. However, one consequence of the sanctions is that blocked coupon payments and redemptions owed to sanctioned entities results in an accumulation of cash on Euroclear Bank's balance sheet. At the end of September 2023, Euroclear Bank's balance sheet had increased by EUR 45 billion year-on-year to a total of EUR 164 billion.
As per Euroclear's standard process, cash balances are unremunerated and cash balances are invested to minimise credit risk. Managing such credit risk is a requirement under the Capital Requirements Regulation. The interest paid on reinvestment of cash balances is net interest income earned by Euroclear.
In the nine months to 30 September 2023, interest arising on cash balances from Russia-sanctioned assets was approx. EUR 3 billion. Such interest earnings are driven by two factors: (i) the prevailing interest rates and (ii) the amount of cash balances that Euroclear is required to invest. As such, future earnings will be influenced by the evolving interest rate environment and the size of cash balances as the sanctions evolve. The Board expects the growth of cash balances to begin to stabilise as blocked payments and redemptions accumulate less rapidly.
Overall, Euroclear incurred additional direct costs from the management of Russian sanctions of EUR 34 million in the three first quarters of 2023, with considerable senior management and Board focus on the topic. Additionally, the international sanctions and Russian countermeasures have resulted in a loss of activities from sanctioned clients and Russian securities, which negatively impacted business income by EUR 18 million.
Euroclear is faced with a high level of complexity in managing both the wide-ranging package of sanctions and a set of economic countermeasures, which Russia has implemented since it does not recognise the international sanctions. Euroclear allocates considerable time, resources and capital to manage the market issues, potential risks, and implications of these countermeasures while maintaining regular dialogue with clients and other stakeholders.
Various parties in Russia contest the consequences of the application of sanctions and countermeasures, with a significant number of legal proceedings ongoing, almost exclusively in Russian courts. Euroclear is defending against all relevant legal claims and intends to continue to do so against any further claims of this nature.
In parallel, the Board notes that the European Commission is contemplating various options to use the profits generated by sanctioned amounts held by financial institutions, including Euroclear, for the financing of Ukraine's reconstruction.
Euroclear is focused on minimising potential legal, technical, and operational risks that may arise for itself and its clients from the implementation of any proposals from the European Commission. The company continues to act in a transparent manner with all authorities involved and to retain profits related to the Russian sanctions until the situation becomes clearer.
Annexes
Euroclear Bank and Euroclear Investments are the two group issuing entities. The summary income statements and financial positions at Q3 2023 for both entities are shown below.
Figures in Million of EUR |
Q3 2023 |
Q3 2022 |
Variance |
|
Euroclear Bank Income Statement (BE GAAP) |
||||
Net interest income |
3,803.8 |
550.9 |
3,252.9 |
|
Net fee and commission income |
815.7 |
771.2 |
44.5 |
|
Other income |
20.9 |
-12.5 |
33.4 |
|
Total operating income |
4,640.3 |
1,309.6 |
3,330.7 |
|
Administrative expenses |
-612.5 |
-485.2 |
-127.3 |
|
Operating profit before impairment and taxation |
4,027.9 |
824.4 |
3,203.4 |
|
Result for the period |
3,013.6 |
618.4 |
2,395.1 |
|
Euroclear Bank Statement of Financial Position |
||||
Shareholders' equity |
5,615.7 |
2,424.2 |
3,191.5 |
|
Debt securities issued and funds borrowed (incl.subordinated debt) |
4,846.0 |
5,191.8 |
-345.8 |
|
Total assets |
164,481.0 |
119,887.7 |
44,593.3 |
|
Euroclear Investments Income Statement (BE GAAP) |
Q3 2023 |
Q3 2022 |
Variance |
|
Dividend |
395.5 |
313.4 |
82.1 |
|
Net gains/(losses) on financial assets & liabilities |
10.5 |
-5.9 |
16.4 |
|
Other income |
-0.2 |
-0.1 |
-0.1 |
|
Total operating income |
405.8 |
307.4 |
98.4 |
|
Administrative expenses |
-0.8 |
-3.4 |
2.6 |
|
Operating profit before impairment and taxation |
405.0 |
303.9 |
101.1 |
|
Result for the period |
402.4 |
304.0 |
98.3 |
|
Euroclear Investments Statement of Financial Position |
||||
Shareholders' equity |
696.7 |
664.4 |
32.3 |
|
Debt securities issued and funds borrowed |
1,656.2 |
1,654.7 |
1.5 |
|
Total assets |
2,354.5 |
2,319.7 |
34.9 |
Euroclear Investments has been relocated from Luxembourg to Belgium on 31 December 2022 at midnight. The financial statements are now prepared under Belgian GAAP, and the 2022 have been restated accordingly.
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, Euroclear UK & International and MFEXbyEuroclear.
[1] Given the substantial income related to frozen assets, Euroclear will continue to separate the Russian sanction-related earnings from the underlying financial results.
Media Contact -
Thomas Churchill
thomas.churchill@euroclear.com
+32 471 63 65 35
Pascal Brabant
pascal.brabant@euroclear.com
+32 475 78 36 62
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