14th May 2014 08:42
LONDON (Alliance News) - ICAP PLC Wednesday said annual pretax trading profit slipped 4.2% as a result of a tough year in which it was hit by new rules governing derivatives, deleveraging by banks, and low currency volatility and interest rates reducing trading volumes.
In a statement, the interdealer broker, which matches buyers and sellers across a range of asset classes in the wholesale financial markets and operates a number of electronic trading platforms, said pretax trading profit fell to GBP272.0 million in the year ended March 31, compared with GBP284.0 million a year earlier, after a 5% fall in revenue to GBP1.40 billion.
ICAP has been left to adjust to a range of new rules aimed at making the financial services industry safer in the wake of the crisis. Chief Executive Michael Spencer said trading conditions have been "extremely difficult" and are likely to remain so.
"The trading operations of our bank customers, particularly their fixed income, currencies, and commodities franchises, continue to be scaled back as balance sheets are de-levered in response to increased capital requirements," Spencer said.
"In addition to these structural developments, cyclical factors such as the low interest rate environment, muted foreign exchange rate volatility and continued uncertainty over the long overdue economic recovery, have inevitably impacted revenue," the CEO added.
ICAP's trading profit strips out acquisition and disposal costs, as well as exceptional items, which it says "better reflects" trading earnings. Including those items, pretax profit increased to GBP122.0 million, from GBP66.0 million. The main reason for the difference is that statutory earnings in the year ended March 31, 2013 were hit by higher acquisition and disposal costs, largely on a GBP72.0 million impairment to ICAP's Link business due to weakening in the equity derivatives markets.
However, the cost of exceptional items rose by GBP16.0 million after the interdealer broker was hit by fines in September last year over the manipulation of yen LIBOR rates. The US Commodity Futures Trading Commission ordered ICAP to pay USD65.0 million, while the UK Financial Conduct Authority imposed a GBP14.0 million fine.
In a conference call with journalists Wednesday, Spencer described the experience as "shattering."
"This was also an extremely difficult year because of the yen LIBOR investigation. We have learnt lessons from this experience and have taken steps to strengthen the business," Spencer said.
However, Spencer is looking ahead to the opportunities to adapt to the new regulatory and structural environment for financial services firms.
"ICAP, with its diverse portfolio of businesses, is uniquely positioned to provide the full range of pre-trade, execution and post-trade services. I am convinced that the move towards increased electronic trading of derivatives, central clearing and risk mitigation are positive drivers for future growth," Spencer said.
ICAP has been investing in new products and platforms as it enters the changed regulatory world, developing a swap execution facility amongst other offerings.
ICAP maintained its full-year dividend at 22.0 pence a share.
ICAP shares were Wednesday quoted at 390.00 pence, down 0.3%.
By Samuel Agini; [email protected]; @samuelagini
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