ICAP CEO eyes 35-40 percent market share

LONDON (Reuters) - ICAP Plc (IAP.L), the world's biggest inter-dealer broker, said it expects to increase its market share to 35-40 percent in the next three years, from about 31 percent now, and may make small acquisitions to get there.

"We believe we'll get our market share to between 35 and 40 percent in the next two or three years, both through organic growth or a small acquisition or two," Michael Spencer, chief executive of ICAP, said at the Reuters Finance Summit in London on Tuesday.

Spencer said ICAP would grow with new products and markets, expand in emerging markets and try to build "a whole new portfolio of businesses in post-trade services".

A greater share of business will be conducted on ICAP's lower cost and higher profit electronic trading platform, which currently accounts for about 30 percent of group profit.

"I fully expect that in the foreseeable future half of ICAP's profits will come from the electronic business, and I don't think that's many years away," Spencer said.

ICAP has been one of the top-performing financial stocks this year as it benefits from lively financial markets, matching up buyers and sellers across fixed income, foreign exchange, equities and commodities markets.

"I suspect ... we will continue to see higher-than-average volatility across the financial markets," Spencer said, in reference to recent turmoil in financial markets.

"Yes, we are a commercial beneficiary of these uncertain times and are likely to continue to be so, but I'd prefer the world banking system wasn't going through the crisis it is experiencing."

He said while volatility was boosting activity, it could slow growth next year if it continues to hit banks.

"Current levels of activity in the secondary markets are very high; we would not normally expect this level of activity to continue, so we would expect some sort of slowdown.

"If our customers have a rough ride, then that might have a deflator on our growth in 2008," he said.

"I don't think it's a major bear market ... I think we are probably part of the way through a shake-out," he added.

ICAP is a member of the FTSE 100 .FTSE, with a market value of almost 4 billion pounds ($8.35 billion), and handles over $1.5 trillion worth of transactions on an average day.

Its shares hit a record high of 606 pence last week and have climbed almost a quarter this year, easily outpacing a 3 percent rise in the UK's general finance index .FTASX8770. The shares ended down 0.7 percent on Tuesday at 589.5 pence.

INNOVATION

Spencer said he wanted to build ICAP's business in credit derivatives and transport, that the insurance market was ripe for the development of more derivatives trading, and that more innovative products could be developed in areas such as soft commodities.

"I still like to innovate; I haven't lost the enthusiasm to try and change the world a little bit," he said.

ICAP held takeover talks with the London Stock Exchange (LSE.L) last year. Spencer said it was the LSE that approached ICAP, but he didn't want to dwell on why a deal didn't happen.

He said he would be keen to buy Italian bond trading platform MTS, which is now owned by the LSE after its takeover of Borsa Italiana, but MTS doesn't appear to be for sale.

ICAP and the other major inter-dealer brokers already had global scale, Spencer said, adding that exchanges were likely to continue to consolidate to benefit from scale in technology and distribution.

"In the short run, the priority of the exchanges, as best we can identify, is further exchange mergers, and their aspirations in the OTC space are slightly further out on the horizon," he said.

ICAP said last month it was on course to achieve underlying pretax profit near the top end of the 289 million-305 million pounds expected by analysts for the year to March 2008. At the top end, profits would be up 21 percent from 252 million last year. It will report half-year results on November 20.

Spencer said industry growth was estimated at 16 percent in 2006, and growth this year was likely to be similar in dollar terms, but would be lower in sterling terms due to the impact of the weak U.S. currency.