Icap shares tumble after shock warning on faltering trades

Icap, the world's largest interdealer broker, shocked the market yesterday by warning that business had slackened because derivatives and bond trading were faltering due to changes in the global economic picture.

Icap, the world's largest interdealer broker, shocked the market yesterday by warning that business had slackened because derivatives and bond trading were faltering due to changes in the global economic picture.

The gloomy statement, which also warned that Icap had been hit by the weakness of the dollar, sent its shares tumbling as much as 13 per cent, their steepest fall since the immediate aftermath of the 11 September 2001 terrorist attacks on the US. The shares closed down 8 per cent to 230p.

Icap said the difficulties would mean it would keep "a tight rein on costs", which could lead to cuts in its headcount. It employs 2,900 staff in 23 offices worldwide, including a large presence in the City. The traditionally generous performance-related bonuses paid to staff could also be hit by the weakness of the trading performance of the past few months. The statement, made ahead of Icap's annual general meeting, confirmed many people's view that the bubble which has been building up in derivatives and fixed-income products for more than a year had finally burst.

Michael Spencer, the chief executive of Icap, explained the difficulties Icap had encountered by saying: "Most key short-term interest rates have begun to rise and consequently seem likely to keep pressure on the yield curve."

He added: "Overall activity levels in the wholesale financial markets in fixed-income securities and derivatives during the first three months of our financial year have steadied, particularly compared with the very buoyant conditions experienced during the same three months last year."

Icap's shares have been on a downwards trajectory in the past few months, falling 29 per cent since March, in recognition of the tough market conditions being experienced by firms that specialise in trading complex financial products. Hedge funds have also been hit by shifts such as decisions by the US and UK to raise interest rates.

The company emphasised that the impact of the economic trends was limited. It reported that its electronic broking business had shown "encouraging" progress, with volumes going through its system, rather than being carried out by the manual method, rising strongly.

Icap is more used to wowing the City with stellar profits than to having to explain a disappointing performance. But analysts said they thought the weakness was a rough patch which would not last for long.

Martin Cross, an analyst at Teather & Greenwood, said he had cut forecasts for Icap's annual profits from £183m to £175m.