The world’s largest interdealer broker TP ICAP (TCAP) has seen its shares collapse by 31.2% to 289.1p after issuing a major profit warning.

The company says costs are rising due to regulations such as MiFID II as well as issues concerning Brexit and IT security, meaning earnings will come in below the bottom end of analysts’ forecasts for 2018.

The news has cost CEO John Phizackerley his job and the company has reduces its cost saving target for 2019 from around £100m to £75m.

The cost saving targets had been put in place by Phizackerley as part of the £1.3bn purchase of broking business ICAP in 2016.

ICAP is better known as an interdealer broker – this is a financial intermediary which facilitates transactions between investment banks and other large financial institutions.

Such businesses are vital in helping to find buyers and sellers of large illiquid assets which would usually be hard to shift.

WHY DIDN’T TP ICAP SEE THIS COMING?

Any company involved in finance should have a good understanding of the various regulations that may impinge on the business as well as other issues such as Brexit that could affect it.

Investment bank Liberum earlier this year attributed TP ICAP’s pre-tax profit miss of 3% to £233m in 2017 to ‘various additional costs associated with MiFID II’.

It also said that cost savings of £100m at the current run rate ‘could likely be achieved ahead of schedule’.

TP ICAP’s chairman Rupert Robson now comments: ‘The evolving landscape is driving up costs across our industry. The acquisition of ICAP has given us greater scale to withstand this pressure. The potential for these combined businesses remains extremely compelling and this will be evidenced in the coming years.

‘However, it has become clear that a change of leadership is required to execute our medium-term growth strategy and deliver the detail of the integration process.’

Nicolas Breteau is lined up to become the company’s new CEO with Robin Stewart taking on the role of chief financial officer on a full time basis.

COMPANIES LOSING PATIENCE

Russ Mould, investment director at AJ Bell, says companies seem reluctant to show much patience with their management at present, as illustrated by TP ICAP’s CEO being shown the door.

He says new rules on market transparency somewhat undermine the rationale for merging Tullet Prebon, as it was in 2016, with ICAP’s voice broking business.

‘The future of voice broking or negotiating contracts and trades over the telephone looks more uncertain thanks to Mifid II which many observers expect will lead to an increasing proportion of this work being carried out electronically.

‘Longer term the company has cut its annual cost saving target by a quarter as invests to adapt to the “evolving industry landscape”.’


Issue Date: 10 Jul 2018