Broker ICAP to cut more costs after profit slumps

LONDON Tue May 14, 2013 6:56am EDT

Michael Spencer, Chief Executive of ICAP, listens during a Future of Finance Initiative conference in Horsham, southern England December 8, 2009. REUTERS/Stefan Wermuth

Michael Spencer, Chief Executive of ICAP, listens during a Future of Finance Initiative conference in Horsham, southern England December 8, 2009.

Credit: Reuters/Stefan Wermuth

LONDON (Reuters) - Interdealer broker ICAP (IAP.L) plans to cut costs by an additional 120 million pounds ($184 million) over the next three years to offset a slump in trading activity that sent full-year profits down 20 percent.

The London-based company said on Tuesday that it would cut more from both fixed and variable costs, including salaries and staff numbers.

ICAP has cut 147 jobs in the past year, trimming headcount to 4,976. The number of brokers fell by 152 to 2,195. It declined to say how many jobs would be cut this year.

Brokers such as ICAP and rival Tullett Prebon (TLPR.L), which make money by matching buyers and sellers of bonds, currencies and swaps, have battled slumping trading volumes since the start of the financial crisis.

Many have responded with cost cuts, and ICAP said it had delivered 60 million pounds in savings in its financial year to end-March - 10 million pounds more than previously announced.

The bigger than expected savings helped ICAP's shares to gain 10 percent to 327.3 pence by 1003 GMT. Pretax profits came in at 284 million pounds, down 20 percent but slightly ahead of previous guidance of 280 million pounds.

TRADING PICK-UP

Chief Executive Michael Spencer said the new financial year had started encouragingly, with a pick-up in trading activity, but that market conditions remain "fragile and unpredictable".

"In the short term, this situation is unlikely to change until greater confidence in the markets is re-established and there is more clarity around regulatory reform," he said.

ICAP, which has been trying to reposition its businesses towards electronic broking, said that electronic markets and post-trade risk and information businesses had contributed two thirds of its operating profit. Post-trade includes middle and back office services such as trade confirmation.

Group revenues slid 12 percent to 1.47 billion pounds, ICAP said.

"This has been an extraordinarily tough year in the wholesale financial markets," Spencer said. "Trading activity across all asset classes was negatively affected by a combination of cyclical and structural factors."

The broker proposed an unchanged full-year dividend of 22 pence per share.

The company also said that it was continuing to co-operate with regulatory investigations into the role of some of its employees in alleged manipulation of the London Interbank Offered Rate (Libor).

'NO SLEEPLESS NIGHTS'

ICAP has said previously that one of its global broking subsidiaries has been formally notified that it is the subject of a Financial Conduct Authority investigation. It has suspended one employee and three remain on administrative leave.

The firm is also co-operating with the Commodity Futures Trading Commission (CFTC) in its inquiries about ISDAfix, a widely used benchmark for swaps. ICAP is involved in the administration of part of the ISDAfix process.

Bloomberg reported in April that the CFTC was investigating ICAP and as many as 15 banks over possible manipulation of the benchmark.

Spencer said that ICAP's internal investigations so far had concluded that its brokers had done nothing wrong in relation to ISDAfix. He said he had "no sleepless nights" over the matter. ($1 = 0.6517 British pounds)

(Editing by David Goodman)

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