ICAP Slides to Near Four-Year Low as Profit Drops 26%

ICAP CEO Michael Spencer
Michael Spencer, chief executive officer of ICAP Plc. Photographer: Chris Ratcliffe/Bloomberg

ICAP Plc, the world’s largest broker of transactions between banks, fell to the lowest in more than three-and-a-half years after first-half pretax profit shrank 26 percent, hurt by Europe’s sovereign debt crisis.

Profit in the six months through Sept. 30 fell to 137 million pounds ($217 million) from 186 million pounds in the year-earlier period, the firm said in a statement today. Full-year profit will be at the “low end” of the 300 million-pound to 332 million-pound range of analyst estimates, London-based ICAP said.

“This has been one of the toughest periods in my 36-year career in the wholesale financial markets,” Chief Executive Officer Michael Spencer said. “I do not believe this negative environment will continue indefinitely, but equally I do not expect it to improve imminently.”

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.

The stock fell 9.2 percent to 281.40 pence in London trading, the lowest since March 2009. The shares have dropped 19 percent so far this year.

“This reflects the continuing unhelpful volume backdrop, which reaches across pretty well all markets,” Philip Middleton, a London-based analyst at Bank of America Corp. who had estimated the company would have a 330 million-pound profit for the year, wrote in a note to clients today.

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 repeated its May statement that it’s received requests from government agencies probing banks’ past submissions to the London interbank offered rate. The firm said it’s co-operating fully with requests from government agencies for information in the investigation. ICAP said it’s impossible to predict the scope and timing of any impact on the company.

Spencer said the firm has suspended one person as a result of its internal probe into Libor-rigging, and that nobody has been fired. Barclays Plc paid a record 290 million-pound fine earlier this year for manipulating Libor, and regulators in the U.S. and U.K. have been investigating the role of other institutions in how the rate is set.

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