Icap suffers as the bubble bursts

THE world's largest interdealer broker, Icap, today confirmed that the bubble had burst in its core business of derivatives and fixed income products as it warned business had slowed.

The trading decline will hit bonuses and probably lead to job cuts - understood to be initially in back-office administration - to meet chief executive Michael Spencer's expectation that profits will improve this year.

Icap employs 2,900 staff in 23 offices worldwide, including a large presence in the City.

Delivering a first-quarter trading update to coincide with today's annual meeting, Spencer said that after an 'encouraging start in April', overall activity in these areas had since 'steadied particularly compared with the very buoyant conditions' of a year ago.

With most of Icap's business in the US, the weak dollar continues to affect profits reported in sterling but Spencer added: 'We expect, by keeping a tight rein on costs, to improve our results in the current year.'

Barely two months ago, Spencer said when delivering annual results that he expected market volatility to continue over the coming months.

When inflation and interest-rate expectations gyrate, trading volumes in the firm's key derivatives business soar. Today he said that, following a rise in short-term interest rates, 'corporate bonds, mortgage-backed securities and some medium-term derivatives markets have been slower whereas government bond issuance has continued to grow steadily'.