Bank system ‘near stable’, says Icap

Icap, the world’s largest inter-dealer broker, said the worst of the financial crisis was over and that the global wholesale banking business had “reached a point of stability”.

However, the company’s shares fell more than 8 per cent, making it one of the day’s worst performers in the FTSE 100, even after it reported six-month figures roughly in line with expectations.

Michael Spencer, chief executive, said the financial crisis had “passed its worst point” and Icap had “navigated a pretty good outcome” through it.

Icap acts as a go-between in the trading of over-the-counter – non-exchange-traded – government bonds, repos, interest rates, foreign exchange, freight and energy derivatives. Its business, like that of other inter-dealer brokers, thrives on volatility.

Icap said “extraordinary” events in September – including the collapse of Lehman Brothers – had generated record trading volumes in many markets “as participants re-assessed their exposures and the flight to quality and liquidity resumed”.

Icap reported a 5 per cent rise in net income to £84m ($125m), on a 22 per cent rise in revenue to £764m. The results benefited from the sudden and sharp appreciation in the value of the dollar against the pound and euro. Full-year profits were likely to benefit to the tune of £40m because of foreign currency effects.

“We have seen very high trading volumes in many of our markets as ‘risky assets’ have been liquidated and there has been a dramatic migration to ‘safe-haven assets’,” Icap said.

“Steeper yield curves, the higher price of credit and continuing disruption in the money markets suggest that this period of increased activity is not yet over.”

Mr Spencer said the company, which is the world’s biggest broker of government bonds, should benefit from an anticipated “wall of refinancing and [bond] issuance”.

Icap also anticipated that trading spreads would widen as consolidation in financial services would shrink the number of participants, prompting liquidity to be “more rationally priced”.

As efforts move ahead in the US to come up with a central clearing mechanism for OTC credit default swaps, industry participants are to meet again in Brussels on Thursday to discuss progress on the issue in Europe. Icap said it supported such clearing initiatives, but said it believed no regulator was interested in seeing the trading of OTC products shift to exchanges.

Icap shares closed down 21½p at 230p.

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