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ICAP Slides as Broker Leaves Profit Forecast Unchanged

ICAP Says First-Quarter Revenue Rises 2% on Volatility Increase
The ICAP Plc logo is seen on the company headquarters in London. Photographer: Chris Ratcliffe/Bloomberg

ICAP Plc, the world’s largest broker of transactions between banks, tumbled in London trading as it left its full-year profit forecast unchanged after analysts had predicted an increase.

Revenue rose 2 percent in the fiscal first quarter from the year-earlier period, ICAP said in a statement today. The London-based company left its forecast for full-year pretax profit unchanged at between 284 million pounds ($423 million) and 304 million pounds for the year through March 2014.

The increase in volatility in government bonds following Federal Reserve Chairman Ben S. Bernanke’s announcement that the central bank could eventually start curtailing fixed-income purchases in the U.S. led analysts to expect an increase in ICAP’s profit. Brokers such as ICAP, which act as a go-between for banks that trade bonds, stock and currencies, profit when prices fluctuate as more traders use the products they offer.

“We were expecting the increase in volatility to translate into higher revenue but that didn’t materialize in the guidance,” said Gary Greenwood, an analyst at Shore Capital in Liverpool, England with a buy rating on ICAP. “The lack of upgrade to forecasts today is what has disappointed.”

The stock fell 3.8 percent at 384.9 pence in London trading today. The company is still up 25 percent this year, for a market value of about 2.5 billion pounds.

Michael Spencer

Chief Executive Officer Michael Spencer is cutting expenses to mitigate weak revenue growth that he attributes to a stalling economy and interest rates at record lows. The company said in May it expects to make between 80 million pounds and 120 million pounds of savings in the next three years.

Average daily volume on ICAP’s fixed-income trading platform BrokerTec was $659 billion in the quarter, up 13 percent on the previous year, the firm said.

The debate over the future of the U.S. Federal Reserve’s policy of quantitative easing in the world’s largest economy had a “significant positive impact” on Treasury volumes in May and June, prompting a 51 percent increase in average daily volume compared with the previous year, ICAP said. The increase in revenue was less pronounced, ICAP added.

“The encouraging start to the financial year has continued throughout the quarter,” the firm said in the statement, without giving specific figures for the first quarter. Still, “trading conditions remain challenging.”

Download: Blanchflower Says Fed Not Ready to Taper


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