One on One with Craig Donohue, CEO, Chicago Mercantile Exchange
Tuesday, January 30, 2007
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SUSIE GHARIB: Shares of the Chicago Mercantile Exchange slipped 1.5 percent today on news that quarterly earnings and revenues missed analyst estimates. Profits at the nation's largest futures exchange rose 33 percent in the fourth quarter, thanks to strong volume in the derivatives markets. But per-share earnings of $2.91 were $0.07 below estimates. Earlier today, I talked with the Chicago Merc's CEO Craig Donohue about those earnings and the status of the exchange's $8 billion merger with the Chicago Board of Trade. We began by talking about the outlook for earnings for 2007.
CRAIG DONOHUE, CEO, CHICAGO MERCANTILE EXCHANGE: Well, I think the outlook has continued very strong growth. You know, this was our sixth consecutive year of record earnings and it was our seventh consecutive year of record volume growth. And, you know, essentially what's happening is these markets are expanding very dramatically. Part of that is technology and the fact that we're now 75 percent electronic. We have global reach today. We have an increasing and expanding set of customers globally that are using these products and they're becoming I think much more inventive about how they use derivative products to hedge and protect against risks.
GHARIB: Mr. Donohue, as you know, the Federal Reserve is meeting today and tomorrow to make a decision about the direction on interest rates. Is there -- are you worried about any type of interest rate event that could slow down growth of the Chicago Merc?
DONOHUE: No, I mean, generally -- obviously we exist to hedge those kinds of risks and so, you know, when people are unsure about the direction of interest rates, for example, or where they have an interest rate exposure that could be affected by Fed monetary policy or a rate hike or decrease, they tend to come here to manage those risks.
GHARIB: Looking at your merger with the Chicago Board of Trade, once that does happen, will you truly be able to merge the product bases of these two huge exchanges?
DONOHUE: Yeah, absolutely. That's a big part of how we're going to benefit our customers in terms of efficiencies and at the same time create value for our shareholders. We're going to be trading all of the products of the Chicago Mercantile Exchange and the Chicago Board of Trade on the CMEs Globe Ex platform and we're also going to be consolidating all of our physically traded contracts onto a single trading floor located at the Chicago Board of Trade.
GHARIB: In terms of getting approval, when do you expect to hear from the Department of Justice?
DONOHUE: Well, that's an ongoing process. You know, we're working very closely with the Department of Justice right now and so it's up to them, really. We can't set the time frame, that's for government to decide. But we're certainly doing our part, we hope, in terms of being responsive and meeting their needs.
GHARIB: There's already a lot of speculation that the next step for the Chicago Merc is to do some kind of merger or linkage with a global exchange, probably -- or possibly with some exchange in Asia. What are your plans?
DONOHUE: That may be in our future, but at the same time we're not dependent on that. We can grow globally because of our global distribution network for electronic trading. So we'll have to wait and see.
GHARIB: Mr. Donahue, thank you very much for talking with us.
DONOHUE: Thank you very much.
