By Clare Hutchison
LONDON (Reuters) - ICAP, the world's biggest broker of transactions between banks, is downsizing its voice broking unit to concentrate on investments in the more profitable area of electronic broking and post-trade services.
Interdealer brokers, whose staff match buyers and sellers of currencies, bonds and other tradable instruments, have been hit hard by a regulations that led their traditional investment bank clients to cut back on dealing and forced more trading on to electronic platforms.
ICAP (L:IAP) Chief Executive Michael Spencer confirmed on Wednesday that he was cutting staff at the Global Broking division, which houses its brokers, although he declined to say how many jobs were at risk and which desks would be affected.
Thomson Reuters IFR reported last month that the broker had begun culling 100 staff - around 5 percent of a 2,000-strong unit.
"Fundamentally the industry has changed and we have made a decision that there are certain business lines ... where we either have too many brokers or that the business itself is not a core business in our long-term strategy and is not profitable for us and that we will exit it," Spencer said on a conference call with reporters.
He said ICAP was unlikely to sell any parts of its business.
Ultra-low and steady interest rates have also reduced the scope for trading from ICAP's traditional investment bank clients. Goldman Sachs (N:GS) and JP Morgan (N:JPM) this week reported drops in trading revenues 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 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 355.8 pence at 1119 GMT (12.19 p.m. BST).
FALLING REVENUE
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, reflecting customers' changing needs in a new regulatory environment.
The 28-year-old company, which competes with Tullett Prebon (L:TLPR), BGC Partners (O:BGCP), GFI Group (N:GFIG) and Swiss-based Tradition (S:CFT), has been trying to reposition its businesses towards those activities, which now account for two thirds of its operating profit. It spent 35 million pounds on initiatives in those divisions in its last financial year.
"We believe that is the future. We remain very bullish for the medium term outlook for electronic broking and post trade," he said.
ICAP said its cost cutting programme was on track to deliver savings of at least 60 million pounds ($102.8 million) in the current year.
(Reporting by Clare Hutchison; editing by William Hardy and Tom Pfeiffer)