ICAP confirms broker staff cuts as revenue falls

By Clare Hutchison

LONDON (Reuters) - ICAP Plc (IAP.L), the world's biggest broker of transactions between banks, is downsizing its so-called voice broking unit to concentrate on investments in the more profitable areas of electronic broking and post-trade services.

Interdealer brokers like ICAP, whose staff match buyers and sellers of currencies, bonds and other tradable instruments, have been hit hard by regulations that led their traditional investment bank clients to cut back on dealing and forced more trading on to electronic platforms.

ICAP Chief Executive Michael Spencer confirmed on Wednesday he was cutting staff in the company's Global Broking division, which houses its brokers, although he declined to say how many jobs were at risk and which desks would be affected.

Citing market sources, Thomson Reuters IFR reported last month that the company had begun cutting 100 broking staff, or around 5 percent of a 2,000-strong unit.

Spencer said the downturn in voice broking, a decade ago the main driver of ICAP's profits, was "as bad a drought as I've experienced in my entire career.

"We decided we needed a fundamental resizing of that business for what we believe is the new world order in our industry," Spencer said.

Ultra-low interest rates have also reduced the scope for trading among ICAP's traditional investment bank clients. Goldman Sachs (GS.N) and JP Morgan (JPM.N) this week reported drops in trading revenue of 10 percent and 15 percent respectively in the second quarter.

Those declines were not as severe as expected, but Spencer quashed any expectations of a quick rebound.

"The macro (economic) outlook for all of us remains a challenging one ... Volumes, I think, are going to be pretty subdued for a while."

ICAP shares, which have fallen 21 percent this year in a rising British stock market, were little changed at 354.9 pence by 1451 GMT (3.51 a.m. BST).

Analyst Gary Greenwood at brokerage Shore Capital saw scope for a recovery in ICAP shares in the lonter term, because of the company's diversification into higher-margin businesses like electronic broking and post-trade services quicker than rivals.

"Over time I think ICAP may have a smaller overall revenue base than it has had historically, but I think it will have a much higher quality revenue base ... Once (investors) start to see the bottom in the global broking side, I think the market will start to re-rate the shares quite significantly," Greenwood said.

ICAP earlier reported first-quarter revenue down 14 percent from a year earlier. Voice broking turnover fell 19 percent. Volume at two of its main electronic trading platforms, BrokerTec for fixed income and EBS for currencies, were 10 percent lower than a year earlier at $707 billion.

But EBS Direct, a direct-dealing platform aimed primarily at smaller and regional banks, and iSwap, an electronic platform for trading interest rate swaps, both achieved record high volumes in June.

Spencer said customers were increasingly using electronic transactions for their activities and the company would be investing more in electronic broking, including expanding its fixed-income offering and growing beyond spot FX at EBS, as outlined by EBS's CEO in an interview.

The same goes for ICAP's post-trade and information business, which saw double-digit percentage revenue growth in the first quarter.

The 28-year-old company, which competes with Tullett Prebon (TLPR.L), BGC Partners (BGCP.O), GFI Group (GFIG.N) and Swiss-based Tradition (CFT.S), has been trying to reposition its businesses towards those activities, which now account for two-thirds of its operating profit.

"We believe that is the future. We remain very bullish for the medium-term outlook for electronic broking and post-trade," Spencer said.

(Editing by Tom Pfeiffer and David Holmes)