CityIndex has been around for nearly 25 years (established in 1983 almost 10 years after IG) and the company offers a good range of spread betting opportunities across a large number of markets. The ultimate parent company of City Index is IPGL, a private holding company. IPGL's other interests include an indirect shareholding of approximately 20 per cent. in ICAP plc, the FTSE 100 listed interdealer broker with a market capitalisation of approximately £4.3 billion, of which Michael Spencer is a director and Chief Executive Officer.
In September 2006, City Index acquired IFX Group plc ('IFX'), the London-based international business which provides institutional and retail clients with a range of innovative leveraged financial products, principally in the foreign exchange and global equity markets. The offer valued IFX at approximately £57.9 million. Today the Group trades primarily under the City Index, Finspreads, IFX and FX Solutions brands and also provides a fully outsourced white label solution to numerous partners.
As a group, City Index transacts in excess of 1.5 million trades per month for individuals in over 50 countries worldwide, across a wide range of instruments including contracts for differences, foreign exchange, options and, in the UK, spread betting services. The Group employs some 500 staff across 6 offices in the UK, United States, China, Singapore and Australia and has partnership relationships throughout Europe, North America, Australia and the Middle East. The Group is regulated in Europe, the United States, Singapore and Australia. City Index derives over half of its revenues from overseas and is planning to rebrand itself as Ifx.com in new markets as it launches out multilingual, multi-currency websites.
Curiously, when the company originally started in 1983 it had just 10 personnel, mostly traders. Ten years later that figure grew to 30, and today they have grown to become City Index Group, a global firm with a multitude brands and products including financial spread betting, CFDs and margin foreign exchange, with around 500 employees worldwide.
2008 was a rough patch for CityIndex having incurred a £61.1m loss in the year to March 2009 (in the previous year the loss amounted to £30m) as the spread betting provider wrote off bad-debts and goodwill on acquisitions amidst the credit crunch. CityIndex was forced to write off £35m in 2009 after clients defaulted on trades; which represented a small decrease on the £43m of write-offs in 2008. Most of the bad debt losses originated from just a handful of clients who happened to be friends and acquaintances of Mr Spencer and in May 2010 Geoffrey Conway-Henderson, a former director of ICAP, the inter-dealer broker founded and run by Mr Spencer, was declared bankrupt after piling up losses of £5.8m with City Index. City Index is also thought to have lost £4m after Fitzgerald Securities, a company controlled by financier Guy Naggar, collapsed.
CityIndex is now said to be profitable after a re-organisation of the business by Martin Belsham, who now heads City Index as CEO (replacing Clive Cook). Belsham is thought to have been instrumental in reducing debt and cutting running costs from £8m a month to £5.5m, and reducing headcount from 500 to 450, while still getting onboard 180 new people. City Index now also have a new system to auto close-out trades which policy was adopted to ensure that large clients don't end up owing substantially more than they have deposited with City Index.
Michael Spencer, the founder of interdealer broker ICAP, sold City Index to USA rival GAIN Capital Holdings (NYSE:GAIN) for an estimated $118m in October 2014. Gain is reported to have paid $20m in cash, $60m in convertible bonds and 5.3 million-worth of the USA group's shares for City Index. In practice, owner of the Forex.com brand is paying less than the billed price as this includes $36m of cash on City Index's balance sheet and $65m worth of net operating losses, which Gain Capital can carry forward.
After the conclusion of the deal, the company stated that the combined size of client deposits now totalled more than $1.1 billion. The deal translates into a company with a global footprint that currenctly services over 235,000 private clients in more than 180 countries with annual trading volumes of more than $3tn. City Index is reported to earn almost half of its revenues from the UK before this transaction.
Glenn Stevens, GAIN's CEO stated that the deal advances their growth strategy while creating scale for their retail business and accelerates the development of their trading technology. The combined entities will generate about 61% of their revenues from foreign exchange and 39% from CFDs/UK financial spread betting in markets such as shares, indices and commodities. City Index is reported to have generated $124.8m in revenues and $10.7m in adjusted earnings before interest, tax, depreciation and amortisation during the 12 months to September 30 2014. At the time of writing (September 30, 2014), City Index is reported to have 104,000 funded retail accounts and $344 million in client assets.
The acquisition represents GAIN's second transaction in about a year. In September 2013 it acquired Global Futures and Forex, a foreign exchange and derivatives trading business. Four years ago, in excess of 90% of GAIN's revenues originated from the USA but the company is now diversifying.
Michael Spencer, now 55 is an Oxford physics major who became a stockbroker at Simon and Coates in 1976. He is an immensely powerful and popular figure in the Square Mile, admired for having been a trader himself and and for working his way up to the very top. Today Michael heads ICAP, the world's largest interdealer broker. Through his Intercapital Private Group, he also heads investment bank Numis and spread-better City Index. Today, Michael spends most of his time moving between high finance, politics and charity work. The private life of Mr Spencer has also sometimes raised eyebrows. The controversial tycoon sold £45 million in shares from his broking firm Icap weeks before their value took a hit. He also later admitted of utilising £15 million worth of stock as security for a loan without informing the stock market. A devout Catholic, he separated Lorraine, his wife of 25 years, in 2008 for Sarah, Marchioness of Milford Haven. A month later he was sidelined by party chiefs and stripped of his fundraising duties. However, it now appears that his close friend the Prime Minister seems to have forgiven him and is tipped to promote betting millionaire Michael Spencer, the former Tory party treasurer, to the Lords. Ex-Tory treasurer Michael Spencer has donated £3.8million to the Conservative Party. It is interesting to note that Michael Spencer was born in Malaysia but has still managed to turn himself into one of the UK's richest men.
Martin Belsham was brought back to head and re-organise City Index in 2009 (he used to head it in the past - about 10 years ago) after the business had endured two rough years, suffering considerable losses during the recession and forcing IPGL, Spencer's private investment division to inject a further £70m into the business. Belsham was previously a broker and spent 6 years at the Rank Group after departing ways with City Index the first time.
He is thought of having approached IPGL with a view to getting backing for a new business idea while still being involved with Rank, who, however, persuaded him to get to City Index. Flexibility is one of Belsham's strong points. A decade ago when most of the business was conducted by telephone, Belsham sold the sports spread betting division of CityIndex to focus on the financial markets but afterwards he set up Blue Square as a separate online sports branch running it from City Index's main offices until investors (mainly Michael Spencer) decided to sell it to Rank for some £60m - with Belsham going with it although Blue Square ultimately ended getting outmanoeuvred by online competitors like Bet365 and Paddy Power.
Declan Kelly, IPGL's chief executive was quoted as saying 'Martin understands technology and he understands marketing. He's also a good chief executive; he doesn't micro-manage.' City Index has already developed one of the first spread betting applications for the iPhone, which has boosted mobile trades to 10% of City Index's volume. Belsham also plans the launch of multilingual, multi-currency websites and a more customer-oriented approach to develop CityIndex's client base beyond the City-boy - 85% male - client base. He's also eyeing Asia with a view to rapid expansion in the region.
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Verdict: City Index have recently revamped their platform and although the limited risk accounts are now no longer available, their offering has now improved.
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