Interactive Brokers sees slump in revenues in Q3 of 2014, market making weighs on financials

The US Forex industry has set its eyes on Interactive Brokers (NASDAQ GS:IBKR) today as the Greenwich-based company is the first among American FX brokers to report its performance results for the third quarter of 2014.

Interactive Brokers has been one of the two US retail foreign exchange dealers to have enjoyed a rise in customer assets under custody in August this year, while the number of customer accounts has been increasing steadily during the three months comprised in the quarter until the end of September 2014.

Could these solid metrics be reflected in some robust financial numbers? And could IB enjoy some perks from improved volatility after in the second quarter of this year the electronic brokerage segment saw commissions and execution fees drop by 10% year-on-year, due to lower customer volumes in foreign exchange and futures?

The results announced earlier gave a mixed response to these questions, as net revenues in the three months to September 30, 2014 amounted to $171 million, down by 45% from the preceding quarter and down by 47.6% from the $326 million recorded in the same quarter a year ago. Pre-tax income did not provide a better piece of news, as in the third quarter of 2014 it reached $40 million, marking a fall of 79.6% against the same quarter in 2013.

The broker announced diluted loss per share on a comprehensive basis of $0.13 for the third quarter of 2014, compared to diluted earnings per share on a comprehensive basis of $0.39 for the same period in 2013.

On the brighter side, a humble dividend will be paid to investors, as IB declared quarterly cash dividend of $0.10 per share. This dividend is payable on December 12, 2014 to shareholders of record as of December 1, 2014.

For those curious on the performance of the different businesses within the group, it is useful to mention that the Electronic Brokerage segment performed well, supported by the improvement in volatility in September. Pre-tax income at this segment increased 41%, to $152 million in the quarter ended September 30, 2014 against the same period in 2013.

Pre-tax profit margin surged to 63% in the third quarter, compared with 56% in the equivalent period last year. Improvement is seen in commissions and execution fees, which rose by 10% from the year-ago quarter, on the back of higher customer trading volumes.

The market making segment of Interactive Brokers’ business weighed on the overall financial results: the business recorded a loss before income taxes of $112 million in the third quarter of 2014. The result was attributed to currency translation effects, but also to tighter competition in the sector, weaker average volatility (as measured by the CBOE VIX index), increased global M&A activity and a trading error that led to a loss of about $16 million during the quarter.

Business highlights for the third quarter of 2014 include:

– 63% Electronic Brokerage pretax profit margin for this quarter, up from 56% in the year-ago quarter.

– 23% overall pretax profit margin for this quarter, down from 60% in the year-ago quarter. Year to date profit margin was 52%.

– Customer equity grew 33% from the year-ago quarter to $54.9 billion and customer debits increased by 36%, to $17.3 billion.

– Customer accounts grew 18% from the year-ago quarter to 272,000

– Total DARTs increased 13% from the year-ago quarter to 534,000.

– Brokerage segment equity was $2.9 billion. Total equity was $5.2 billion.

You can read the full press release by the Interactive Brokers here

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Interactive Brokers sees slump in revenues in Q3 of 2014, market making weighs on financials


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