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ICAP Profit Falls on Waning Volatility, Equities Exit

ICAP profit falls 5% as markets stabilize
ICAP CEO Michael Spencer speaks during a television interview in London. Photographer: Chris Ratcliffe/Bloomberg

ICAP Plc, the world’s largest broker of transactions between banks, said full-year pretax profit fell 5 percent as markets stabilized and volatility declined.

Pretax profit before one-off items and impairments, ICAP’s preferred measure of performance, was 333 million pounds ($475 million) for the year ended March 31. Stripping out a 25 million-pound charge to exit its European and Asia-Pacific full-service equities business cuts the total to 308 million pounds, within the range the company forecast in February. Revenue rose 1 percent to 1.6 billion pounds.

ICAP’s strategy calls for it to generate a third of operating profit from each of its main businesses: voice broking, electronic transactions and post-trade services, Chief Executive Officer Michael Spencer said on a conference call with journalists. The company, which has grown through a mixture of acquisitions and organic growth, now plans to focus on expanding without outside purchases, he said.

“We have put in place the building blocks we need to build the business,” Spencer said. “We have got the assets we need, now we want to go and monetize them.”

Net income fell to 116 million pounds from 175 million pounds a year earlier, ICAP said. Basic earnings per share was 18 pence in the period from 17.6 pence.

Stock Drops

ICAP fell 4.2 percent to 373.1 pence as of 5:22 p.m. in London, valuing the company at 2.4 billion pounds. The stock has declined 13.2 percent this year. The stock fell almost 20 percent on Feb. 5 when ICAP cut its earnings outlook for the year, saying it expected pretax profit of 295 million pounds to 315 million pounds.

ICAP said it booked after-tax charges of 21 million pounds to settle a Securities & Exchange Commission investigation.

Spencer reiterated that ICAP will break even in Brazil this fiscal year. It has more than 200 people in its Brazil unit, making the unit ICAP’s third-largest wholly owned national operation, behind London and New York, Spencer said.

Revenue at ICAP’s interest rates business, the broker’s biggest division, and its equities operations declined last year as market volatility fell. ICAP benefits when price fluctuations increase because more customers use its services.

Market price swings have jumped since March amid investor concerns that European leaders are failing to control the region’s budget deficit crisis. A JPMorgan Chase & Co. index that measures volatility in currencies jumped to a one-year high on May 6. A day later, an index gauging swings in U.S. stocks soared to the highest since April 2009.

“We have made a good start to the new financial year, with volatile conditions creating more active markets,” Spencer said in the statement.

‘Fully Committed’

Spencer, who plans to step down as treasurer of the Tory party, the senior partner in the U.K.’s governing coalition, said he is “fully committed” to ICAP. “I intend to remain CEO for the foreseeable future,” he said on the conference call. His 17 percent stake in the company, worth more than 400 million pounds at current market prices, represents a “considerable” financial commitment, he said.

The company plans to pay a dividend of 12.44 pence per share, bringing the total to 17.55 pence for the year.

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