ICAP Profits Down 25%, Delivers Cautious Outlook

Interdealer Broker ICAP released its half year earnings report this morning with declines in both the top and bottom line. For the six months ended September 30th, ICAP posted an adjusted EPS of 15.4p on revenues of £746 million, a drop of 21% and 14% respectively from 2011 results. Highlights of the report included a 10% increase in its dividend to 6.60p, and £50 million in cost savings, and growth in its Traiana post trade processing division. ICAP blamed the earnings shortfall on the “ongoing Eurozone crisis, the London Olympics and regulatory uncertainty.”

In FX, ICAP reported that its EBS platform recorded average daily volumes of $115 billion over the six month period which was a 34% below that same period last year. However, despite the large decline in trading activity, overall revenue from the FX division only fell by 10% to £156 million. The FX unit was assisted by a 26% rise in revnue from its Traiana Harmony post trade processing product line. ICAP also reported that Traiana was expanding its non-FX business due to strong interest the Harmony product.

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ICAP also delivered a ‘cautious’ outlook for the near term as although they expect to higher volumes in 2013 as more clarity reaches the market, they don’t expect a “material improvement in performance compared to the final quarter of the prior year.” Also, ICAP forecasted that its full year pre tax profit for the full year ending 2013 will be at the lower end of analyst expectations of £300 million to £332 million.

Commenting on the first half results and difficult period, Michael Spencer, Group Chief Executive Officer, said: “This has been one of the toughest periods in my 36 year career in the wholesale financial markets. Trading volumes this year have fallen significantly across nearly all asset classes and geographies whether equities, futures, FX, commodities, fixed income and also OTC. This has been caused by a combination of factors: global economic weakness, the continuing Eurozone crisis, bank recapitalisation and deleveraging, uncertainty over regulatory reform, quantitative easing and near zero rates, to name the main ones. I do not believe this negative environment will continue indefinitely but equally I do not expect it to improve imminently. It has been a time to weather a hard storm and prepare thoroughly for financial regulatory reform.”

Shares of ICAP (IAP.L) are down 8.1% to 284.7p in early morning trading on the LSE.