Investors in TP Icap took fright yesterday when the world’s biggest interdealer broker announced a drop in profits and tempered hopes that it would enjoy a boost from the recent surge in market volatility.
Shares in the FTSE 250 company fell by 20p, or 15.3 per cent, to 111p after it reported an 81 per cent slump in annual earnings and gave a more cautious assessment of its prospects than the City had expected.
Markets from oil to equities have been on a rollercoaster since Russia’s invasion of Ukraine last month. Such volatility is usually a boon for TP Icap, because it acts as a middleman in markets and its customers normally trade more in turbulent times, but the broker signalled that recent market swings had been so great that some traders were sitting on the sidelines instead.
“Like other market operators, we are typically a beneficiary of volatility and the past few weeks have been characterised by high levels of uncertainty,” the company said. “However, predicting future market activity is difficult. We would also note that periods of extreme volatility, such as has been witnessed in recent weeks, can have complex effects on ... risk-taking appetite and liquidity capacity.”
TP Icap enjoyed a boom in earnings in 2020 when the onset of the pandemic fuelled volatility and spurred trading. Calmer markets last year meant that pre-tax profits slumped to £24 million from £129 million in 2020, missing the £37 million expected by City analysts. The company also warned that it would take a hit of as much as £14 million from the fallout from Russia’s attack on Ukraine. This encompasses £5 million in realised losses, including a £1 million writedown linked to sanctioned clients, and a further £9 million in potential unrealised losses.
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The results are a setback for Nicolas Breteau, 53, the TP Icap chief executive who has led the company for nearly four years. The group in its present form was created six years ago when Tullett Prebon completed its £1.3 billion merger with the telephone-based broking business of Icap, its rival.
While the company has focused on derivatives, bond and commodities markets, a deal last year to buy Liquidnet, a US group, significantly expanded its business in equities. Liquidnet runs electronic trading venues known as dark pools, which are used by investors to buy and sell substantial blocks of shares without revealing their intentions to other traders, which could run the risk of prices moving against them.
Revenues at TP Icap edged up from £1.79 billion in 2020 to £1.87 billion last year. However, excluding the contribution made by Liquidnet they fell by 5 per cent.
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