ICAP Sees Lower Profit as Derivatives Business Slows

By John Glover

Oct. 1 (Bloomberg) -- ICAP Plc, the world’s largest broker of transactions between banks, said first-half profit was “slightly” lower than a year earlier as its credit and equity derivatives businesses slowed.

Revenue in the period increased 6 percent, London-based ICAP said in a statement today. Pretax profit for the year to March 2010 will be in line with analysts’ expectations of between 309 million pounds ($493 million) and 354 million pounds, the company said.

“In electronic broking, markets have been quieter than the very active conditions a year ago,” Chief Executive Officer Michael Spencer said in the statement. “Cost reductions and other measures have helped to hold margins.”

The slump in credit markets last year spurred ICAP’s customers to increase trading, boosting the amount of business it handles. As markets calmed this year amid unprecedented government efforts, trading in some of ICAP’s markets slowed.

ICAP fell 4.5 pence, or 1 percent, to 418.2 pence at 8:05 a.m. in London after slumping as much 4.85 percent.

The broker has gained 44 percent this year, valuing the company at 2.7 billion pounds, compared with an increase of 16 percent on the U.K.’s benchmark FTSE 100 Index. The FTSE 350 Banks Index of U.K. financial companies has climbed 36 percent year-to-date.

Pretax profit before one-off items and impairments, ICAP’s preferred measure of performance, was 346 million pounds in the fiscal year to March 2009, it said in May.

“Many of the markets in which we operate are benefiting from the continuing low short-term interest rates, steep yield curves and substantial corporate and government bond issuance,” Spencer said in the statement. “Both credit and equity derivatives have experienced more difficult conditions.”

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net