ICAP's performance worse than expected

Revenues are being hit by subdued trading volumes at inter-dealer broker ICAP with the only bright spot in the firm's pre-close period interim report being signs of a pick-up in September.

Revenue in the six months ending September 30th is expected to be around 14% lower than the previous year, the group revealed, sending its shares sharply lower in early trading. ICAP has lost a quarter of its value over the last year and as a result lost its place in the FTSE 100 index.

Activity in the global capital markets remained subdued due to the Eurozone crisis and the well-recorded difficulties faced by the global economy, ICAP's statement said, as the group explained why performance across its voice and electronic businesses had been more subdued than foreseen at the time of the firm's annual general meeting in July.

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There is a glimmer of hope in that activity has picked up a tad in September but the downward trend of the top line will put more pressure on the group's cost-cutting efforts to ensure profits remain up to par. ICAP said it continues to make good progress on this front and is on schedule to deliver at least £50m per year run-rate savings by the end of the current financial year, which runs to the end of March.

In September, EBS, ICAP's electronic foreign exchange platform, announced system and policy changes following extensive consultation with its customers to improve the performance of the platform. EBS's performance has been affected by a decrease in volumes across the foreign exchange market and by two of its main currencies, the Swiss Franc and Japanese Yen, being subject to intervention, which has resulted in significantly decreased volatility.

Overall volumes on BrokerTec, ICAP's fixed income platform, have also been affected by low rates and a flat yield curve. BrokerTec has, however, seen an improvement in its market share following the recent significant upgrade to the platform. ICAP's electronic platform for euro interest rate swaps, i-Swap, saw a substantial increase in activity towards the end of the first half and continues to maintain its market leading position, ICAP said.

Overall demand for ICAP's post trade, risk mitigation and information products and services remained "solid", with the Traiana offering seeing double-digit percentage revenue growth.

Commenting on the first half and outlook, Michael Spencer, Group Chief Executive Officer of ICAP, said: "The macroeconomic environment remains difficult and it's too early to judge if recent actions by the Federal Reserve and the European Central Bank will result in a sustained improvement in market confidence. In any event, we will continue to take the necessary action to constrain our cost base as well as position ICAP optimally for upcoming financial regulatory reform.

"We have a strong balance sheet and continue to convert profit very efficiently into cash. Our diversified business, together with multiple initiatives in our electronic and post trade businesses, will ensure that we benefit from regulatory and market changes and build on our position as the industry leader," Spencer declared.

JH