New York Stock Exchange Seats Losing Value?

Econintersect:  Dealing with public through the New York Stock Exchange (NYSE:NYX) is rapidly becoming less profitable.  Of the 164 member firms of the NYSE reporting, 44% lost money in the second quarter.  A year ago in the same quarter, when there were 175 member firms, 37% lost money.  Not all quarters recently have been as bad as the last two second quarters:  In the first quarter of 2012 only 31% of 169 member firms lost money.

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The value of a seat on the New York Stock Exchange has been falling after reaching a high nearly $4 million in 2005 to a value arounf $2.5 million today.  But with the spike in firms losing money, can the value decline even more?  The numbers reported by the NYSE itself indicate distress for member firms in three of the last four quarters falling just short of the worst quarter of the 2007-09 crash.

Here is the full (very cryptic) news release from NYSE Euronext:

NEW YORK, August 28, 2012 — New York Stock Exchange member firms that conduct business with the public reported a second-quarter 2012 after-tax profit slightly over $2.1 billion and revenues of approximately $37.0 billion, compared with a nearly $4.7 billion after-tax profit on revenues of about $42.0 billion in the first-quarter of 2012. Comparative financial results are reported in the table below:

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The statement of income and loss from the financial statements available on the NYSE Euronext website is shown below:

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Some of the important details:

• Total Revenue down Q-o-Q:  11.8%
• Total Expenses down Q-o-Q:  2.8%
• Unconsolidated Net Income down Q-o-Q:  55.1%

Why the big drop in net income?  When the an organization operates on narrow margin (NYSE margin 1st quarter was 17% and second quarter only 10%, the carry through to the bottom line of seemingly smallish revenue and expense changes can dramatically impact earnings.

How these numbers apply to the entire membership of the New York Stock Exchange is uncertain.  The number of firms dealing with the public exceeds 500 of the 1,366 total membership.  It appears that less than half of the total number of firms in the category (dealing with the public) is reporting financial results to the NYSE.  There is some uncertainty whether the percentage losing money from the sample will be close to the percentage for the entire cohort.

Written by John Lounsbury

Sources:

• NYSE Member Firms Report Second Quarter Results (NYSE Euronext News Release)

• NYSE Members Profits Down 55% in 2nd Quarter (Tom Steinert-Threikeld, Securities Technology Monitor, 28 August 2012)

• Chapter 5:  The Stock Market (Study materials, Econ 80, California Colleges and Univesrities, 2008)