ICAP financial statement – electronic volumes slowing down, voice broking is up

ICAP today published its interim management statement and in it we can see that its electronic broking volumes are slowing

ICAP today published its interim management statement and in it we can see that its electronic broking volumes are slowing down. ICAP’s voice broking volumes on the other hand are surprisingly going back up.

The third quarter ended 31 December 2011 was less active than the first half with Group revenue from continuing operations for the nine months to 31 December lower by 2% compared with the same period in the previous year. For the third quarter, Group revenue from continuing operations fell by 7% compared with the strong third quarter of 2011.

The continued uncertainty in the Eurozone and constraints on market liquidity, together with customers reducing risk before the year-end, led to more subdued volumes. Our post trade businesses however continued to perform strongly throughout the period.

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It is still relatively early in 2012 but we have seen signs of an encouraging recovery in voice broking revenue. Volumes on our electronic platforms however, while up on December, are down 19% compared to a busy January 2011 due mainly to very low volatility in yen and Swiss FX as a result of central bank actions.

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In response to market conditions, we have also been realigning our business to match customer demand by reducing headcount in areas of lowered profitability, while investing and hiring in growth areas such as financial futures and commodities. To date we have reduced our cost base by a net £20 million compared to the prior year.

As a result, we expect pre-tax profits for the year to 31 March 2012 to be towards the upper end of the current analyst range of £336 million to £358 million2.

On our benchmark electronic foreign exchange and fixed income platforms, EBS and BrokerTec, total average daily volumes for the quarter ended 31 December 2011 were $730 billion, a decrease of 7% year on year, albeit the comparison period benefited from quantitative easing. In fixed income products, total average daily volumes on the BrokerTec platform were $594 billion, a decrease of 8% on the previous year, in part due to the historically low US yield curve. We have seen a good performance from European government bonds. Average daily volumes on EBS decreased 6% year-on-year to $136 billion for the quarter, partly due to lower volumes in some of EBS’s strongest currency pairs resulting from central bank intervention policies in Japan and Switzerland.

Our post trade risk and information business saw strong revenue growth for the quarter ended 31 December 2011. TriOptima, through triReduce, its compression service for both interest rate and credit default swaps, helped customers reduce their counterparty credit risk by terminating a record-breaking $62 trillion in OTC derivative notional principal outstanding during 2011. In some months, including October, triReduce eliminated more interest rate swap notional principal than the market added in new trades. Reset benefited from continued volatility as risk reduction remained a key focus for clients. ReMatch launched its new quanto service, which was well received by the market. At 31 December 2011 Traiana’s Harmony network was processing an average of 1.1 million transactions per day, an increase of more than 55% over the same period in 2010. CLSAS, our aggregation service joint venture with CLS, processed on average 240,000 transactions per day in the third quarter, an increase of 190% over the same period last year.

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