The derivatives specialist had to contend with exceptionally low volatility in the markets in the first half of the year. Despite the unpredictable environment, the trend could worsen, its CEO warns.
«If I knew that, I would consider myself very lucky and would probably also be a very rich man» Leonteq CEO Lukas Ruflin's said in response to a question Thursday on how stock market volatility would develop. Derivatives trading hinges on volatility and is the most important driver for the Swiss derivatives firm. Compared to the previous year, Leonteq achieved a tenth of the net result in the unit with 17.8 million francs.
Cash is King
Despite increased issuing activity and stable fees from users of Leonteq's platform, net profit slumped from 118 million to just 28.8 million francs compared to the same period last year, as finews.com reported. Ruflin warns market volatility could decrease even further and remain subdued.
This can be attributed to the difficult stock market situation, as investors remain cautious and shift their assets into cash-like instruments, which now promise a higher return following rate increases by major central banks. Market bets with structured products, in which Leonteq specializes, face difficulties in such an environment.
Not even the banking crisis in the Spring, which sealed the fate of Credit Suisse, was able to boost volatility significantly for the long term.
Surface Calm
Ruflin seemingly took developments in stride on Thursday. He explained Leonteq's management had adjusted to the fact that half-years with very good performance and half-years with less good performance can occur, and doesn't change longer-term opportunities for the business. He sees no reason to change its dividend and investment policy and intends to invest an additional 20 to 30 million francs into the company annually.
He said that if investments had been suspended, the first-half results would have looked much better.
Leonteq was able to squeeze costs, even though it created the equivalent of 50 new full-time positions. Even with that, personnel expenses increased by only 1 percentage point. Management put on hold on variable pay components linked to business performance and reduced expenditures for external employees.
Raiffeisen Interface a Work in Progress
Ruflin remained vague about the cooperation with the Swiss Raiffeisen Group, with the project aiming to connect Leonteq's technology and services platform to a Raiffeisen solution for structured products. The work was to have been completed in May, but is ongoing as testing of the interfaces continues, Leonteq's CEO said Tuesday.
The success of the project is crucial to the historically close cooperation between the two institutions. The extension of the cooperation agreement through 2030 depends on the successful connection of their platforms.
The cooperative banks hold 29 percent of Leonteq shares.
