Icap Q3 revenue up 20%; expects to meet full year forecasts

Source: Icap

ICAP plc (IAP.L), the world's premier interdealer broker, is making this Interim Management Statement in relation to the period from 1 October 2008 to today's date and the outlook for ICAP's financial year ending 31 March 2009.

Commenting on the third quarter and outlook, Michael Spencer, Chief Executive of ICAP, said "Our business continues to perform well in these challenging conditions. We expect to take full advantage of the restructuring of the financial markets currently underway and remain positive about the medium term potential for the business.

Group revenue in the quarter ended 31 December 2008 was some 20% ahead of the same period in the previous year, when the markets were very active. The quarter began strongly but activity in the financial markets began to slow in November and was followed by the seasonal slow down in December.

The scale and diversity of ICAP are key strengths of the business. Our broad geographic and product spread and strong market share have helped us in the first weeks of 2009 with very strong activity in some markets being more than offset by lower levels in others."

After investing significantly in the future growth of the business and benefiting from changes in foreign exchange rates, profit (before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items) for the financial year ending 31 March 2009 is anticipated to be within the range of analysts' current forecasts.

Performance in turbulent conditions

The globally coordinated fiscal easing has been substantial and we believe that it will in due course restore confidence in the financial markets. There has been significant turbulence as banks and other financial institutions address credit write-downs, costs reductions, capital rebuilding and leverage. Through this turmoil the over-the-counter (OTC) markets have proved themselves to be extremely robust in these extraordinary market conditions.

· Interest rates - In Europe, interest rate derivatives have continued to be very active, less in North America. Low short term interest rates and steep yield curves tend to make favourable trading conditions for dealers and inas and inalers and investors. We expect to take advantage of the substantially increased issuance of government bonds, particularly in the US and Europe. A new market has been created with the issuance of securities through the Temporary Liquidity Guarantee Program (TLGP). To date about US$150 billion of combined fixed and floating rate securities has been issued; it is anticipated to rise to US$600 billion.

· Credit - Both bonds and derivatives markets stand out as strong performers. January proved to be a bumper month for the new issue bond markets with a total of Investment Grade corporate benchmarks issued in Europe in January and $60 billion of Investment Grade debt was priced in the US. We have continued to invest in developing our teams, particularly in the US.

· Commodities - Overall a good performance with oil and emissions particularly active. We have recently started broking base metals on the LME following the approval of ICAP's application for Category Two membership and have continued to invest in this area.

· Shipping - Our shipping business has felt the impact of negative economic sentiment. Dry freight rates fell back sharply last year but have recently begun to increase again. The tanker markets have been less affected.

· Foreign exchange - The volatility in exchange rates and foreign exchange's lack of correlation with other traded products kept volumes in this market high, only really slowing in recent months

· Equities and equity derivatives - The cash equity and equity derivatives markets have seen reduced volumes, some significantly. ICAP's cash equity business is growing well, albeit from a low base. Our market leading equity derivatives business has experienced much tighter, more difficult conditions in many markets.

· Emerging markets - Many markets have seen patchy liquidity and lower volumes. Our joint venture in China continues to perform well and we are investing in the expansion our operations in Brazil.

· Electronic broking - Volumes in electronic broking have fallen recently, but our market position in both foreign exchange and fixed income remains very strong and we have the potential to grow as the banks focus more on "flow" businesses. Total average daily electronic broking volume on ICAP's OTC electronic broking platforms EBS and BrokerTec in the 12 months to January 2009 was $780bn, down four percent on the corresponding period 12 months earlier. We continue to invest in the expansion and development of the Group's electronic systems to keep pace with customer demand.

· There is significant demand both within and beyond ICAP's existing customer base to improve the efficiency of post-trade processing and to reduce the capital allocated to existing positions. The regulatory authorities are also keen that the infrastructure behind the OTC markets is as robust as possible and the banks have made a series of commitments to improve post trade processing in the OTC derivatives markets. ICAP is building a range of other post-trade processing, portfolio compression and reconciliation and risk management services - Traiana, TriOptima and Reset. All three are experiencing significant growth in the volumes that they process.

As previously announced ICAP is an equal member of a consortium of a number of leading financial institutions that is collectively considering a possible cash offer for LCH.Clearnet Group Limited. Discussions are at a very preliminary stage, and there can be no certainty that such an offer will be made.


As capital will be scarcer and more expensive and leverage lower it is likely that there will be reduced demand for structured products and increased demand for high volume, liquid products, which account for the overwhelming majority of ICAP business but which often operate at lower margins. There are significant opportunities to build our business by attracting high quality people and acquiring some assets at attractive prices.

Changes in our customers' business models and retrenchment in the banking industry are changing our customer mix. In electronic markets, algorithmic trading now accounts for an increasing share of trading volumes. This environment also creates new opportunities for an un-conflicted, independent agency broker like ICAP in areas such as equities and futures. There is potential for further consolidation of market share among interdealer brokers as traders concentrate their business in the largest, deepest and most reliable liquidity pools.

ICAP is maintaining its focus on costs and is taking advantage of a number of opportunities to reduce overheads. These savings will partially offset the investment in the new areas described above, which are still in their start up phase. The Group continues to be highly cash generative to support these investments and benefits from a strong balance sheet.


The current forecasts for ICAP plc pre-tax profits referred to in this announcement are based on forecasts of profit before tax, amortisation and impairment of intangibles arising on consolidation and exceptional items provided by 11 equity analysts. The range of those forecasts for the year to March 2009 is between £336 million and £356 million compared with pre-tax profits in the previous year of £330 million. The source of these estimates was Bloomberg, Reuters and the analysts' published reports.

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