Cash Call at City Index – Micheal Spencer Injects £70 Million

29th May 2011

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 – 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. Related Articles Spencer pledged Modigliani painting to secure loan 26 Feb 2009 "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