10th Feb 2015 07:38
LONDON (Alliance News) - ICAP PLC Tuesday said it remains cautious due to challenging conditions in its global broking division, which has been forced to narrow its focus due to the new operating backdrop in the wake of the financial crisis.
ICAP, which matches buyers and sellers in the wholesale markets, said that revenue in global broking declined by 8% during its third quarter to the end of December at both constant currency and on a reported basis. Excluding businesses that were exited, the decline was less pronounced, at 4%, ICAP said.
A combination of low interest rates, flat yield curves and bank deleveraging have all hit the global broking division, and ICAP has been forced to focus on areas in which it can still make good returns, such as over-the-counter European interest rate derivatives, and close unprofitable desks and operations.
Overall, the group's revenue in the last three months of 2014 was down 1% on the corresponding period last year at constant currency, and by 2% on a reported basis.
"We are confident our strategy will position ICAP to deliver future growth. Our cash generation remains strong, and we will continue to balance the need to invest in growth opportunities with returns to our shareholders," Chief Executive Michael Spencer said in a statement.
"While we see signs of increased activity in some markets, we continue to remain cautious as conditions in Global Broking remain challenging," Spencer added.
Also contributing to group revenue was "low double digit revenue growth" by ICAP's electronic markets division, helped by "significantly increased" activity levels at EBS, its foreign exchange platform, which it combined with its fixed income equivalent BrokerTec in December.
EBS saw all currency pairs benefit from the uptick in market volatility, aided by the Bank of Japan's surprise move at the end of last October to expand its stimulus measures amid slowing inflation, as well as the shock removal of the cap on the Swiss franc against the euro by the Swiss National Bank.
Trading activity on the BrokerTec platform was mixed, ICAP said, with strength in US Treasuries partly offset by weakness in Repos.
ICAP also reported "low double-digit revenue growth" by its post trade risk and information division, which has become more important due to the decline of global broking, citing "the positive return from the ongoing investment in the business and the strong demand for TriOptima's compression and portfolio reconciliation services".
In addition, the group said its cost savings programme is on track to meet its GBP43 million target for the year and at least GBP60 million on an annualised basis.
The news comes amid a dispute with the European Commission over a EUR15 million fine over ICAP's role in a number of cartels in yen interest rate derivatives. In response to last week's fine, the interdealer broker said it is planning to challenge the decision in the European Courts.
By Samuel Agini; [email protected]; @samuelagini
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