ICAP Bullish on EBS as Global Broking Woes Cause Overall Profit Decline in 2014/15

Bank deleveraging attributed to a decline in ICAP's yearly profits, but growth in post trade risk and elecrtonic markets provide

ICAP has reported its full year financial figures for the period ending March 31st, 2015. For the year, bottom line earnings per share (EPS basic) declined 17% to 13 pence compared to 15.7 for the 2014 period. The profit decline came as top line revenues fell 7% to £1.276 billion and profits before tax were reported 21% lower at £95 million.

Global Broking

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The decline in overall revenues was attributed mainly to a decrease in ICAP’s Global Broking unit which consists of 1,571 brokers and services wholesale markets and customers around the world. For the accounting period, Global Broking revenues fell 12% to £789 million. The decline was experienced across all asset class trading desks, with Rates, Commodities, Credit, and Emerging Markets all reporting double digit revenue decreases. ICAP attributed the revenue decline on “a combination of structural and cyclical factors”, including “bank deleveraging, in response to stricter regulatory capital requirements.”

Post Trade Risk

One area that ICAP continues to experience growth is in its Post Trade Risk segment. Consisting of the TriOptima and Traiana businesses, Post Trade Risk revenues grew 8% to £228 million, with operating profit rising 1% to £97 million. The group was boosted by 24% year-over-year growth from TriOptima which reported £67 million in revenues.

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Electronic Markets

For the year, Electronic Markets revenues declined 2% to £259 million. Among the unit’s product lines, ICAP’s eFX trading platform, EBS, appears to finally have stabilized its operations, with revenues increasing 1% to £124 million. The unit has undergone several changes and updates, highlighted by the November 2013 launch of EBS Direct, relationship-based platform that operates in tandem with the firm’s ECN, EBS Markets. According to ICAP, average daily volumes on EBS Direct reached $17 billion in March 2015 after having been reported at $5 billion in April 2014. The platform includes 20 liquidity providers and 350 customers.

Along with EBS, ICAP has begun to put a greater focus on its Electronic Markets offering. Among recent initiatives, in December 2014, the firm merged the EBS and its credit and fixed income BrokerTec platform to provide greater efficiency to customers. In addition, the firm continues to invest in new initiatives such as product launches to boost its electronic trading solutions. Recent product launches include EBS Select and EBS Hedge.

Michael Spencer, Group Chief Executive Officer, commented about the results, “The past year has been one marked by both challenges and opportunities across many of our businesses. Our bank customers have re-prioritised their sales and trading franchises and continued to reduce balance sheet risk. Our regulators continued their important work for market efficiency, embracing greater transparency and tighter, more risk averse financial systems.”

In relation to EBS and electronic trading he added, “Against this backdrop of a transformed market environment, we have re-balanced our portfolio of assets with our Electronic Markets and Post Trade Risk and Information divisions now contributing three quarters of the Group’s profitability. We have materially re-engineered ICAP, with a significant reshaping of our Global Broking division and the merging of EBS and BrokerTec. We have had some excellent successes with EBS Direct, the new emerging currencies on EBS, and in our Post Trade Risk and Information division with risk reduction services from TriOptima. These factors, combined with our ongoing investment in technology-based innovative solutions, have set us on the path to growth.

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