Activity in the global capital markets during the half year ended 30 September 2012 remained subdued due to the Eurozone crisis and the well-recorded difficulties faced by the global economy, according to inter-dealer broker ICAP.
Performance across ICAP’s voice and electronic businesses has remained more muted than anticipated at the time of the AGM in July 2012. There has been, however, some improvement in trading volumes in September. As a result, group revenue in the six months ending 30 September 2012 is expected to be around 14 per cent lower than the previous year.
The group continues to make good progress with its structural review of recurring costs, and is on schedule to deliver at least GBP50m per annum of run-rate savings by the end of the current financial year.
Notwithstanding the more recent pick up in volumes, activity levels remain difficult to predict and it is not yet clear whether signs of improved confidence are sustainable. Due to the successful cost reduction programme, the group anticipates that if volumes in the second half remain at current depressed levels, then pre-tax profits for the year to 31 March 2013 will be within the current analyst range of GBP307m to GBP346m.
ICAP’s voice division was reorganised in August to create a single, global voice broking division which was renamed Global Broking. This will enable the group to execute a more globalised strategy for broking services. Global Broking activity has been slow, in part due to the London Olympics and the ensuing extended holiday season.
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 impacted by a decrease in volumes across the FX 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.
Overall demand for ICAP’s post trade, risk mitigation and information products and services remained solid. Traiana, in particular, saw very strong double-digit revenue growth.
Michael Spencer (pictured), group chief executive officer of ICAP, says: “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.”