ICE, the exchange operator and provider of data, technology and market infrastructure, will launch a range of energy products that do not involve raw materials from Russia after the country’s invasion of Ukraine.
Jeffrey Sprecher, ICE’s chairman and chief executive, said on the earnings call that the group had its best quarter on record for the first three months of this year.
Our Chairman & CEO Jeff Sprecher on another quarter of revenue and earnings per share growth. pic.twitter.com/zTcSYG5Kti
— ICE (@ICE_Markets) May 5, 2022
Sales for global natural gas and environmental products, which account for about 40% of energy revenue, rose 30% in the first quarter.
Sprecher continued that despite all the uncertainties in the energy markets, ICE had a great quarter quarter and achieved record open interest in the energy sector. Price volatility resulted in higher margins, prompting clients to use options as a more cost-effective way to manage risk.
He stressed that a number of ICE products, particularly in Europe but also Brent oil globally, allow delivery of Russian energy in indices or physically delivered contracts. Many companies have decided not to get involved in these products for moral and ethical reasons, so ICE launches a series of ex-Russia energy products.
“There’s been a lot of demand and we have regulatory approval, so you’ll see them roll out,” Sprecher added. “We have very high expectations having worked with industry to develop these products.”
ICE reported consolidated net income of $657 million on consolidated revenue of $1.9 billion for the first quarter, up 6% year over year.
Commenting on the results on the earnings call, Warren Gardiner, ICE’s Chief Financial Officer, said, “In the first quarter, we continued to grow revenue, operating income and cash flow. This achievement was driven by the combination of recurring revenue growth across all segments coupled with growth across our diverse transaction-based businesses.”
Total transaction revenue grew 4%, while total recurring revenue, which accounted for nearly half of total business, grew 9% after posting 10% growth in the first quarter of 2021.
Net income from the exchange rose 12% year over year to $1.1 billion in the first quarter, driven by a 36% increase in interest rate futures and a 16% increase in energy income, according to ICE. Fixed income and data services posted record first-quarter revenue of $509 million, up 9% year over year.
Source: ICE
Acquisition of the Black Knight
ICE also announced an agreement to acquire Black Knight for $13.1 billion, building on ICE’s position as a provider of end-to-end electronic workflow solutions to the US mortgage industry. Black Knight provides software, data and analytics for the real estate and home finance markets.
In August 2020, ICE announced the acquisition of Ellie Mae as part of ICE’s strategy to accelerate the analog-to-digital transition across the mortgage industry.
Intercontinental Exchange Completes Definitive Agreement to Acquire Black Knight – Adding Black Knight’s Integrated Solutions Significantly Strengthens ICE’s Mortgage Technology Ecosystem; Builds track record of digitizing vital networks https://t.co/SAz5Ud00yl
— World Vision (@ExchangeNews) May 4, 2022
Spokesman said, “By adding Black Knight, we have the potential to further enhance the capital markets ecosystem around US home mortgage financing by making these markets less risky for participants by shortening interest rate risk holding periods and reducing the… Making data more transparent to risk holders and creating more efficient hedging markets that should ultimately reduce costs for the entire market.”
Jeff Sprecher, ICE
He added that the combination presents an opportunity to create efficiencies in the marketplace the most inefficient and analogous. “We think it’s an opportunity to take two rare assets that are 100% complementary and bring them together,” said Sprecher.
There are also opportunities to leverage Black Knight’s proprietary data assets in ICE’s growing mortgage technology business and capital markets to bring greater transparency to the mortgage-backed securities markets.
ICE also plans to launch its first mortgage futures contracts on June 13, 2022, subject to regulatory approval. The two contracts are based on indices from a series of 80 US residential mortgage indices introduced by ICE in October 2021.
Joe Tyrrell, President of ICE Mortgage Technology, said in the launch announcement, “This is the next step in how ICE leverages the rich data that ICE Mortgage Technology receives because it has the largest electronic network of mortgage stakeholders in the industry. ICE combines this data with its technology and expertise in the futures markets to create products that help clients in the mortgage loan and mortgage-backed securities market assess, analyze and now manage the risks associated with their mortgage risk administer.”
The Agency MBS market is one of the largest fixed income markets in the world with over $9 trillion outstanding. Listen to Harvey Flax talk about the launch of our new mortgage futures contacts: https://t.co/8c1KckPIPt
— ICE (@ICE_Markets) May 5, 2022
Combining Black Knight’s data with ICE’s expertise in fixed income and capital markets will also provide fixed income markets with more transparency and more transaction-based data for accurate pricing and prepayment modeling.
Spokesman said, “These capabilities combined with our extensive trading and clearing expertise open up a longer-term opportunity to improve transparency for secondary market participants in the form of a loan swap.”
Goldman Sachs and Wells Fargo Securities were principal financial advisors to ICE, and Shearman & Sterling and Morgan Lewis & Bockius were legal advisors. JP Morgan is exclusive financial advisor to Black Knight and Wachtell, Lipton, Rosen & Katz is legal advisor.
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