Reuters faces £370m hit from Instinet as share trading declines

Reuters will have to take a £370m loss for Instinet, its electronic stockbroker, as the market for trading equities continues to contract.

The news and information group will have to book the pre-tax loss for Instinet when it reports 2002 figures next week. It compares with a £148m profit at Instinet in 2001. Instinet, 63 per cent owned by Reuters, yesterday announced its figures for last year and the fourth quarter, which its parent company will have to reflect.

The Instinet loss included a £246m write-down of goodwill for Island ECN, the rival broker it has only just acquired. The Island purchase was an all-share deal originally valued at $508m (£314m) but the charge has had to be taken to reflect the fall in Instinet's share price between the completion of the transaction, in late September and the end of the calendar year.

There is also a restructuring charge of £96m to cover 300 job losses and some property changes. Instinet revenues, which mostly come from trading Nasdaq stocks, collapsed 31 per cent to £592m last year, compared with 2001.

Ed Nicoll, Instinet's chief executive, said: "This has been a tough [fourth] quarter for us, but we are moving ahead to position ourselves for long-term growth and profitability. We are on schedule to reduce our annualised costs by $100m by the end of 2003, which will result in a leaner and more efficient company."

The fourth-quarter loss was $112m or $10m in the red before taking into account the exceptional items. On an underlying basis, the Instinet loss for 2002 was $8m.

Instinet signalled there is even worse to come in 2003. John Fay, its chief financial officer, said: "On a monthly basis, the OTC [over the counter] market average daily trading volume weakened as the [fourth] quarter progressed and continues to decline in January and February of 2003, both of which have historically been very strong months for market volume.

"These numbers are significantly below even the recent trend and will affect our revenues going forward."

US equities executed through Instinet in the fourth quarter consisted of 31.2 billion Nasdaq listed shares and 5.6 billion on the New York Stock Exchange. Island accounted for 13.4 billion of the Nasdaq volume and 2.1 billion of the rest.