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ICAP Sales Fall 9% on Euro Crisis as Spencer Downplays Libor

ICAP First-Quarter Sales Fell 9% After Euro Crisis Hurt Trading
ICAP is cutting costs to bolster profit as the crisis crimps transactions on its foreign-exchange and fixed-income trading platforms. Photographer: Chris Ratcliffe/Bloomberg

ICAP Plc, the world’s largest broker of transactions between banks, said fiscal first-quarter sales fell 9 percent as Europe’s sovereign debt crisis hurt trading.

Full-year pretax profit will be in the middle of the 335 million-pound ($520 million) to 365 million-pound range of analyst estimates, London-based ICAP said in a statement today. ICAP earned 354 million pounds for the 12-month period ended in March 2012, according to the statement.

“The sluggish global economy and euro-zone crisis are inevitably leading to reduced trading volumes,” Chief Executive Officer Michael Spencer said in the statement. “The lack of aggressive action to resolve the euro-zone crisis is not helping to normalize financial market activity in the near term.”

Spencer also said widening international probes into the Libor scandal are not a “high concern” as ICAP isn’t “front and forward” in investigations, given the company did not participate in setting the interest rate. ICAP said in November that it provided information to regulators investigating whether Libor, a reference rate for more than $350 trillion in securities, was manipulated.

ICAP is cutting costs to bolster profit as the crisis crimps transactions on its foreign-exchange and fixed-income trading platforms. The company expects to make more than 50 million pounds of reductions by the end of this financial year, ahead of target, and expects to make “substantially higher” savings next year.

The shares rose 1.2 percent to 314.8 pence in London trading, giving the company a market value of about 2 billion pounds.

Libor Probe

Interdealer brokers such as ICAP act as a go-between for banks that trade bonds, stocks, currencies, energy and derivatives. They profit when prices fluctuate because more traders use the products they trade.

ICAP stock has slid about 12 percent since Barclays Plc was fined 290 million pounds for false Libor submissions by U.K. and U.S. regulators on June 27, sparking concern that other firms being probed will be hit by lawsuits as the scandal widens.

The company has put two employees on administrative leave over the Libor investigation, Spencer said on a conference call with analysts today.

The probe is “not a high priority or a high concern” for ICAP, because the company is not on the panel of banks that participate in setting Libor, he said. “We do not consider ourselves front and forward in this debate,” Spencer said.

Libor is determined by banks’ estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. The submissions aren’t based on real trades.

Jubilee Weekend

ICAP has been questioned by regulators because it acts as a broker for cash deposits and derivatives that Libor is supposed to be based on, Spencer said.

Transactions on ICAP’s electronic foreign exchange and fixed-income platforms fell 19 percent to $712 billion in the quarter ended June 2012 from a year earlier, ICAP said.

The pace of trading slowed on concern that another European country may follow Greece in restructuring its debt, regulatory uncertainty and an abundance of holidays in the U.K., including the Queen’s Jubilee, ICAP said.

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