ICAP, the world’s biggest interdealer broker, reported a good start to its financial year, helped by active and volatile markets, when posting a better than expected five percent drop in full-year pretax profit.
Concerns about Greece and other peripheral European sovereign debt and a 750 million euro rescue package have led to wide swings in over-the-counter currency, interest rate and credit markets. That volatility boosts trading volumes and drives growth in interdealer broking.
ICAP’s adjusted pretax profit fell to £333m for the year to end-March on revenue up one percent to 1.61 billion. That compared with consensus forecasts of £303m on revenue of 1.62 billion, according to reports.
The broker, which had aggressively added businesses in new markets, services and geographic areas, issued a profit warning in February due to losses at three new operations – equities, shipbroking and Brazil.
“We have learned some valuable lessons this past year,” chief executive Michael Spencer said. “We will concentrate this year on growing our business organically.”
In March, ICAP said it would chop the cash equities full-service business, axing up to 114 jobs. In mid-May it reported post-tax losses of £18m and exceptional costs of £46m for closing it.
The company said its Brazilian business continued to expand and had become its third-largest wholly owned office with more than 250 staff, although it showed an operating loss.
The market for its ship-broking business contracted sharply, and ICAP made a small operating loss.
New businesses accounted for an operating loss of £11m, versus a profit of £7m in 2008-09.
ICAP said its share of the interdealer market grew to 22-24 percent as overall industry revenue fell 12 percent in the year, and it aimed to increase that share to 35 percent.
Electronic broking contributed 48 percent of operating profit. ICAP said regulatory and political pressure for more electronic trading and transparency in the OTC markets should help drive growth.
“We have already successfully launched electronic trading of credit derivatives in the US earlier this year and also expect to launch electronic trading of interest rate derivatives in 2010,” the statement said.
A weak pound also added to revenue and operating profit.
The company said it took a charge of £21m for settling a Securities and Exchange industry-wide investigation of fixed income markets.