Michael Spencer forced to inject £70m as City Index clients default
March 2, 2009admin No Comments » |
| Michael Spencer’s Cash Call of £70m |
Michael Spencer, the Conservative party treasurer, has been forced to inject £70m of his personal fortune into City Index after traders defaulted on tens of millions of pounds worth of trades.
Accounts filed at Companies House late last week reveal that clients of the spread betting business, were unable to cover £43m of losses after share prices collapsed.
Just six clients accounted for the majority of the loss, with one client losing £29m betting on a single Spanish property company.
Notes to the accounts reveal that another City Index client has lost a further £12m speculating on the markets, since the year end. To date £4m of that debt has been recovered.
City Index is owned by Spencer’s private vehicle IPGL. Accounts show that some £43 million in losses have not been paid by the unlucky punters.
City Index – which is owned by Mr Spencer’s private vehicle IPGL Limited – lost a further £7.2m in the year to March 31 2008 following the collapse of US-based Sentinel Management Group. A City Index subsidiary had deposited £28m with Sentinel which collapsed into Chapter 11 bankruptcy in August 2007. City Index has recovered some of the money, however according to the accounts £7.2m remains outstanding.
In January, Mr Spencer appointed Martin Belsham chief executive of City Index. Mr Belsham ran financial bookmaker Blue Square for Mr Spencer, prior to its sale to Rank in 2003 for £65m.
“Mistakes have been made, but lessons have been learnt and the underlying business remains sound. We are now trading profitably. At no time were client monies at risk and the group continued to meet its regulatory capital obligations,” said Mr Belsham.
New risk and credit committees have been established and client positions are now reviewed every six months, he added.
A new chief financial officer and chief operating officer have also been appointed in recent months.
City Index made a £30m loss in the year to March 31, compared with a £1m profit the year before. Trading and commission income rose to £78m, up from £50m.
IPGL, Spencer’s investment vehicle, injected £30.2m of cash during the period. Since the year end IPGL has also provided City Index with two subordinated loans totalling £40m.
Despite the £70m injection City Index is in breach of its banking covenants, according to the accounts.
Negotiations with the banks are continuing, said Mr Belsham. “It will be concluded. We are down to the fine print,” he added.
The Daily Telegraph revealed last week that IPGL had pledged a multi-million pound painting by Amedeo Modigliani in order to secure a loan with Sotheby’s Financial Services. The investment vehicle has pledged shares in 14 quoted and private companies as security for a separate loan with HSBC.
Thoughts: One client reportedly lost £29 million on one bet while another lost £12 million, but so far has only paid up £4 million. The bulk of the losses were in the hands of just six clients.
£70 million won’t make much difference to the City’s richest man estimated to have a fortune approaching the billion mark but this article explains the reason why City Index have stopped offering credit betting. Borrowing to invest, to start a business – can be a great way to independence. Borrowing to spreadbet, borrowing to buy shoes, cars or holidays is IMO stupid and suicidal.
Tags: City Index, cityindex, credit betting, IPGL Limited, Michael Spencer
Join the discussion