(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, Jan 24 (Reuters Breakingviews) - ICAP’s Libor woe
comes at an awkward time for the broking industry. The
London-based inter-dealer broker is being investigated by the
Financial Services Authority for possible breaches related to
the fixing of interbank interest rates. Amid trading conditions
described in September by ICAP Chief Executive Michael Spencer
as the toughest in his 36-year City career, it adds a decidedly
unhelpful layer of uncertainty to an already troubling picture.
The notoriety and scope of the Libor hydra means any firm
embroiled risks a reputational hit, or worse. ICAP has at least
one advantage: its brokers do not and did not submit the
borrowing rates used to set Libor. But when UBS’s UBSN.VX
involvement in the scandal was laid bare in December, it was
made clear that brokers at unnamed firms had been paid by
bankers to make fake bids, and offers, that may have obscured
As yet, the FSA has stopped short of suggesting ICAP was
involved. And even if the broker is definitely implicated, the
second-order nature of the alleged offence makes a large fine
less likely. If penalties such as UBS’s $1.5 billion or
Barclays’ (BARC.L) 290 million pounds don’t materialise, it will
be just as well. As intermediaries, brokers lack fat equity
reserves to absorb losses. As of last September, ICAP’s equity
reserve was 1.1 billion pounds, just 1.6 percent of its
With or without a Libor fine, ICAP has two other problems.
One is that its investment banking clients are in full
deleveraging mode, and are doing less business. The other is
that closer regulation of derivatives trades is moving more
market-making onto computerised exchanges. That means less scope
for traditional over-the-phone “voice-broking”.
ICAP has taken steps to protect itself. Two-thirds of
operating profit now comes from electronic, post-trade and
information businesses, a high proportion compared to its
competitors. Even if the UK regulatory probe gets nastier, the
wider business may not be too badly affected. ICAP can hardly
rest easy, however - the worst of the pain suffered by UBS and
Barclays was reputational. That looks like the biggest risk now
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- The UK's Financial Services Authority is probing possible
breaches of market conduct rules by inter-dealer broker ICAP.
The inquiry is in connection with the Libor interest
rate-rigging scandal, according to a source familiar with the
situation. The FSA's investigation began in March last year.
- Two brokers at inter-dealer broker RP Martin were among
three men arrested in connection with Libor on Dec. 11, Reuters
- ICAP suspended one employee and put three others on
administrative leave in connection with the Libor probe, Reuters
reported on Dec. 19.
At 1000 GMT on Jan. 24, ICAP shares were trading at 310
pence, down 4.9 percent.
- ICAP statement [ID:nRSX3043Wa]
- Reuters: Broker ICAP in FSA Libor-fixing investigation -
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Robert Cole and David Evans)
Keywords: BREAKINGVIEWS ICAP/
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