Shake up at EBS continues as two executives leave; analysts wary on broker's prospects
The restructuring at EBS, Icap’s electronic FX broking platform, has continued after the departure of chief executive David Rutter earlier this month with two senior executives leaving the company.
Brian Andreyko, global head of foreign exchange product and development, and Chip Defilippo, FX product manager, both based in New York, have left the firm. The departures come after the company, the world’s largest inter-dealer broker,replaced Rutter as head of EBS with Gil Mandelzis, chief executive of Traiana, the post-trade services group which is also owned by Icap
Rutter also ran Icap’s BrokerTec fixed-income platform. Icap has since moved to separate the leadership of its FX and fixed-income businesses.
Rutter’s departure and the resulting reshuffle have come as both Icap’s FX and fixed-income businesses have struggled in recent months, as noted in a trading statement issued by the company on Wednesday ahead of its full-year results.
The firm said the flat yield curve on US Treasuries had reduced trading opportunities for customers on BrokerTec. That means that the European Central Bank’s long-term financing operation has left banks with ample liquidity and less need to tap repo markets via BrokerTec.
Meanwhile, Icap said the performance of EBS was affected by quieter market conditions and central bank policies in Japan and Switzerland, which have depressed activity in the yen and the Swiss franc, two currencies in which it is a market leader.
Intervention from the Swiss National Bank to stem the rise of the franc and similar action from the Bank of Japan to contain the yen have led to low volatility and limited trading opportunities in their currencies in recent months.
Indeed, that has seen EBS losing its position as the world’s largest FX electronic platform to its main rival Thomson Reuters.
Volumes on Thomson Reuters have been higher than on EBS since November. The latest figures showed that average daily volumes on EBS were $126.7 billion in February, compared with $136 billion on all Thomson Reuters trading platforms.
|Source: Euromoney FXNews|
Icap said, away from FX and fixed income, its diversified business model had underpinned its performance in the fourth quarter.
The company said its full-year performance remained in line with the reduced guidance it gave in its February management statement, when it expected profits through to the end of March to be towards the upper end of an analyst forecast range of between £336 million ($536.5 million) and £358 million.
Icap said that in its voice business there was a pick-up in interest rate markets, while commodities, oil and gas performed strongly. It said performance in all of its post-trade risk and information businesses was strong.
“Icap is on track for a robust performance for the year despite the demanding economic environment,” says Michael Spencer, Icap chief executive.
“We continue to focus on our operational efficiency. In the last three months, we have seen an improvement in risk appetite in some markets. We expect to see a slow move towards more normalized markets as the year progresses.”
Investors remained unimpressed, however, with Icap shares dropping 9.7p to 399.4p in London after the announcement.
James Hamilton, analyst at Numis Securities say there is no hurry to buy Icap shares.
He warns trading conditions remain tough with banks still looking to reduce balance sheet leverage with a number still actively seeking to substantially reduce their trading activity further.
In addtion he says regulation will increasingly penalise trading activities, which provides a "negative and unquantifiable backdrop".
Hamilton says the time to buy Icap shares is when investors see the prospect of US interest rate increases.
“This is expected to see increased volumes in almost all of the Icap product lines impacting not just interest rate futures but the entire shape of the yield curve with the associated impact on foreign exchange,” he says.
“This is also likely to be the time when global trade is increasing. Markets are likely to be performing well with bank profitability and capital strength improving.”