Saxo Bank’s Annual Report for 2013 was released earlier today and Forex Magnates’ reporters have delved deeper into the document to outline some details. Operating income for the year totalled $526 million, however a notable negative adjustment has been made to the company’s figure totalling almost $46 million (DKK 250 million) during the fourth quarter.
It is related to an unfortunate event that unfolded in the aftermath of a very rapid drop in values of equities that led to unrealized losses on CFD contracts for a group of clients operating under one of Saxo Bank’s white label clients. The collateral that was put up to warrant for losses on the given CFD contracts have become insufficient. The issue arose from a delay in the bank’s stop-out procedures that was caused by the white label’s set-up and subsequently postponed due to clients’ confirmation of obligations.
The collateral that is required to maintain the value of the open CFD contracts has been insufficient and has caused the bank to make the unprecedented negative adjustment of its operating income. The total amount of credit risk has amounted to almost $46 million. As a result, the bank has changed its procedures and risk controls in order to prevent future similar occurrences. Saxo has outlined that it is working in close cooperation with the clients in question to ensure the best possible outcome for the situation.
On a positive note, despite the above-mentioned occurrence, deposits at the leading Danish brokerage house have grown to all-time highs of $9.3 billion, while net profits doubled to almost $30 million during the course of 2013. EBITDA has risen impressively by about 48% to $165 million.
Cost Optimization Efforts
As we mentioned in our brief coverage of Saxo Bank’s 2013 numbers earlier, the company has really worked on optimizing costs, which is quite obvious from the fact that despite flat revenue numbers, profits have almost doubled. Operating costs during 2013 were $368 million, which was a decrease of 18% from the previous year. The bulk of that number is comprised of employee compensation and other personnel-related costs. According to the report, the decline in face value is closely attributed to cost-optimization efforts which were decided on in November 2012.
The company has incurred impairment charges for receivables, loans, advances etc. that totaled $3 million, when compared to about $7.3 million in 2012. The losses stem from the retail lending subsidiary Saxo Privatbank A/S.
The effective tax rate for the company has dropped substantially from 46.8% in 2012 to 34.5% last year. The decrease was a result of reversal of impairment of deferred tax assets and non-tax-deductible expenses. Further decreases in the effective tax rate are possible in the coming years as the Danish tax rate will gradually drop from 25% to 22% until 2016.
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Throughout 2013 the company has ensured to offer a broad range of new products to its customers. In an important move the company has enabled its clients to trade 4 crosses of the Chinese yuan with the clear vision that its importance as a globally trading currency will only increase in the future.
Back in December of last year Saxo Bank launched its Trading Academy website on tradingfloor.com, while back in February 2013, it reintroduced an MT4 offering for Saxo’s clients rebranded as SaxoMT4 through its subsidiary in Cyprus, Saxo Capital Markets CY Ltd.
Branding efforts have not been spared, with an emphasis on targeting different sporting events such as cycling throughout 2013, and a brand new deal with Formula One Team, Lotus F1 for 2014.
Institutional Business Diversification
On the institutional side, Saxo has announced the addition of several major banks to its white label clients list in 2013. According to the annual report the bulk of its customers remain in Europe, however growth is mostly driven by the Middle East, South Africa, Asia and Latin America. For Saxo, an ongoing trend in the space has been to drive growth numbers from banks and other financial institutions which are looking to provide an end- to-end solution for their private and retail clients.
Institutional client business has grown by about 8% throughout the year with the majority of business coming from Switzerland, Singapore and the UK. The company catered to investment managers, including hedge funds and independent asset managers.
An interesting solution for small and medium-sized companies has been launched in the Nordic region at the beginning of the upcoming quarter. Saxo Bank seems to have been swift or just lucky to implement a solution catering to businesses that need physical delivery of foreign exchange. The solution enabled corporate customers to save on bank fees (and manipulations) optimizing their costs and bringing additional business. The solution is aimed to roll-out worldwide in 2014.