Climate Exchange results stem share price haemorrhage
London, 18 September: A strong set of interim results for Climate Exchange, the London-listed company that owns two leading carbon exchanges, has halted a share price slide that was prompted by the banking crisis.

The firm reported higher volumes and open interest on its two key carbon exchanges, European Climate Exchange (ECX) and the Chicago Climate Exchange (ECX), in the first six months of 2008. More than 1 billion tonnes (or 1 million contracts) were traded on ECX, up 150% on the same period last year, while CCX volumes rose 286% to 46 million tonnes.

Climate Exchange also reported a near doubling of its turnover to £10.8 million ($19.7 million) and its operating loss halved to £1.4 million from £2.8 million.

Chief executive Neil Eckert said the first half was “another remarkable period where we have not only grown our business at a tremendous pace but more importantly continued to consolidate our number one position in terms of market share in Europe and the US”.

But in recent weeks, the firm’s share price has collapsed from a peak of £20.00 on 22 August to £10.48 on Tuesday – a decline steeper than the market average.

Eckert confirmed that Lehman Brothers – the US investment bank that was put into administration on Monday – was registered as having a 3.4% stake in Climate Exchange and he suspected that there were other “forced sellers” among the firm’s shareholders.

However, this week has seen near-record volumes traded on the ECX and Eckert was bullish about the future. “There’s no doubt [the banking crisis] will affect people’s risk appetite, but so far so good,” he said, noting that carbon tends to be traded alongside energy commodities – and commodity markets have benefited from the turmoil. Moreover, more trades are likely to be fed through the exchange, as it eliminates the counterparty risk of bilateral deals, he said.

This afternoon, the shares had bounced back to £11.50.

Last year, Climate Exchange launched trading in catastrophe-linked futures on its Insurance Futures Exchange. Traders of these futures can increase or decrease their exposure to catastrophic wind events, such as hurricanes, by buying or selling contracts.  The contracts cover five levels of loss from $10 billion to $50 billion (in $10 billion increments) for expiry in December 2008 and 2009.

Eckert believes that market could see enormous growth. Insurance risk “is the last market in the world to go electronic. If we play this well, it could be as big as carbon,” he said.

Around $65 million of risk has been traded so far and the contract could be about to get its first real test with the passing of Hurricane Ike, which may have caused more than $10 billion of damage, the threshold for triggering the first-level contract.

The market will find out in a couple of weeks, when the loss assessor publishes its figures. Eckert said that the crisis at US insurer AIG “could be more serious than any physical event” but, at the same time, it could raise interest in these contracts as companies look for ways of managing their risks.