TP ICAP/Brexit: broker Britain

TP ICAP has discovered a fresh pain point at the intersection of Brexit and Covid-19. Lockdowns kiboshed its plan to relocate some 80 brokers to its EU-approved Parisian hub. The UK interdealer broker hoped to go on servicing EU clients from London for a little longer. EU regulators were unsympathetic. The UK interdealer broker is saying au revoir to some of its EU clients, for the time being at least.

City of London banks and brokers have taken the view that they can flex staffing of EU-based operations to accommodate post-Brexit regulatory demands. Coronavirus has made that harder. TP ICAP says its Paris operation will account for less than 10 per cent of revenues when staffed. Even so, it appears to have been particularly badly blindsided

This is just the latest setback for TP ICAP. IDBs arrange trades between banks, hedge funds and others. Reforms after the 2008 financial crisis shrank their business. Of late they have been struggling to compete with automated alternatives.

TP ICAP’s revenues flatlined last year, on a constant currency basis. The group expects them to come in a whisker below the previous year’s £1.8bn. In contrast, most big investment banks have benefited from buoyant securities trading.

In a bid to diversify, the London broker is buying Liquidnet for $575m, aiming to secure a stronger footing in electronic trading of credit and fixed income products. It is in the throes of a highly dilutive 2-for-5 rights issue to fund the deal: when announced at the end of last year, the capital raising represented a fifth of the existing share capital. But the sliding share price — at 215p, shares are roughly half year-ago levels — means that proportion is now nearer a quarter.

TP ICAP remains upbeat. It reckons the acquisition will help it produce compounding revenue growth of 4 per cent a year in the medium term. The group hopes underlying operating margins will expand from 15 per cent in 2019 to 23 per cent. These assumptions look bold in the wake of Brexit and Covid-19. 

The Lex team is interested in hearing more from readers. Please tell us what you think of the impact of Brexit on trading operations in the comments section below.