By Myles Neligan
LONDON (Reuters) - Icap
Icap's full-service equities business will switch to an execution-only model in its key European and Asian markets, carrying out clients' trading instructions but no longer offering research and investment advice, it said on Monday.
Shares in Icap, whose main business is brokering trades in financial and commodity markets worldwide, were down 3 percent at 380 pence by 1600 GMT, making them the biggest faller in the FTSE 100 share index <.FTSE>, down 0.2 percent.
The move, which will cost Icap 51 million pounds and result in the loss of up to 114 jobs, comes five weeks after the company began a review of the equities business.
The unit, launched in 2008, remained loss-making for longer than Icap expected, and contributed to a shock profit warning from the company on February 5 which wiped a fifth off its stock market value.
The drop in Icap's shares on Monday more than cancelled out gains last week after a press report suggested the company was close to finding a buyer for the equities operation.
NO BUYERS
"In the light of recent press speculation that Icap had found a buyer for its cash equities business, today's news may come as a disappointment to some," Panmure Gordon analyst Vivek Raja said in a research note, reducing his recommendation on Icap shares to "hold" from "buy."
News from Icap that the discontinued businesses made a bigger than expected loss of 25 million pounds in the current financial year also weighed on the stock, Raja said.
Icap's cash equities business was launched two years ago in the anticipation that the global financial crisis would force large investment banks to retreat from equities broking, opening up opportunities for smaller players.
However, a quicker than expected recovery from the crisis, along with continued investment in stockbroking by big banks including Japan's Nomura <8604.T>, which bought the European arm of collapsed U.S. rival Lehman Brothers, has ensured that competition in the sector remains intense, analysts said.
The competitive pressure has been compounded by a sharp drop in equity trading volumes in the last two years as many stock market investors remain on the sidelines awaiting firmer evidence of economic recovery.
HARD TIMES
"It's tough. This period is not a good period to be in that type of business," said Oriel Securities analyst Keith Baird.
"This shows how hard it is to build up a profitable cash equities business in short order."
Last week British stockbroker Collins Stewart
Icap said it remained "strongly committed" to its cash equities execution businesses in the U.S. and Brazil, and would continue to build up its existing London-based execution only business and offer anonymous block trading through its BlockCross pan-European multilateral trading facility.
The shake-up of the cash equities business will also not have any effect on the company's equities derivatives operation, it added.
(Editing by Greg Mahlich)
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