Cantillon

Inside the world of business

MarketSpreads caught short over decision to pull licence

SPREADBETTING HAS, rightly or wrongly, often been perceived as one of the more risky ways to play the market. The Central Bank’s decision to suspend the trading licence of MarketSpreads, one of the leading Irish players in the sector, won’t do anything to change that perception.

The regulator’s decision was not prompted by any action of the company’s current management but, rather curiously, relates to the failure of its auditors Ernst Young to express an opinion on 2009 accounts for the business. These are “legacy” accounts, relating to how the business was managed under its previous owner, WorldSpreads. MarketSpreads had itself identified certain issues with the financial state of the business it purchased in December 2009 and had taken action in the form of a €7 million writedown in assets.

A report by Grant Thornton examining, at the request of the Central Bank, whether the Irish spread-betting firm properly segregated client money from company funds is expected to say that it did. But fully segregated and intact though their funds may be, clients will also have been financially inconvenienced as a direct result of MarketSpreads’s suspension just ahead of the Easter weekend, as the Central Bank’s action obliged the company to close any open positions.

MarketSpreads says it has the support of its clients and it is a mark of the openness and credibility of joint acting chief executives John McGlade and John McNicholl that both men have placed their own mobile contact numbers on MarketSpreads.iefor the benefit of any concerned clients.

However, if the company does somehow succeed in regaining its licence by resolving capital adequacy issues that it was in the middle of discussing with the Central Bank and by conducting a regulator-satisfying “fast-track” audit of its 2010 accounts, it will have its work cut out if it attempts to restore the business. Clients are fully capable of going elsewhere, even as they sympathise with management’s predicament.

"It’s not productive when you’re smack in the middle of exploring alternative options and I’m not sure they would do that"

– Bart Becht, chairman of Coty, which is bidding for control of beauty group Avon on whether it would name a new chief executive. Avon did.

Snub to Global Irish Network bites the hand we hoped would feed

From the outside, Ireland must seem a very confusing place in recent times. First, there was the astonishing outburst from the generally restrained Institute of Directors to the offer of input on State boards as directors from members of the Irish diaspora – free of charge.

Just days later, it was reported that a Government committed almost above all else to job creation is to halve consular coverage in San Francisco – which covers 13 US states, including Silicon Valley, and is seen as pivotal in linking Irish business with Valley venture capitalists.

Both ultimately send out a “don’t call us, we’ll call you” snub to the very people we have been asking to assist us in our economic recovery through the Global Irish Network, established at the two high-profile Global Irish Economic Forums.

Institute of Directors chief executive Maura Quinn said the practical repercussions and unintended consequences of the initiative had not been considered. Like what? The inability to attend regular meetings, the optics of having to courting overseas executives, the demeaning of the role by offering to work for free and a local pool of willing but untapped potential directors.

Given that some top multinationals conduct key meetings by videolink and trawl the world for talent, the first two excuses proferred sound fatuous and the third smacks of self-interest. As for the final element, a series of studies have pointed to a local pool of directors that is too small and interwoven and, as of yet, the institute has not published a list of these willing but untapped candidates.

Back to California, Irish-American businessmen in California are apparently ready to pledge $175,000 a year to cover the costs of what they certainly believe to be a critical position in Ireland’s efforts at job creation and economic recovery.

The Government is reported to be considering the offer.

It might be more interesting to hear them explain how the long-term recovery and growth of the economy can be delivered through this endless series of small but critical cuts to services that appear to be delivering real results made necessary by the commitments not to touch either the income tax regime or the Croke Park deal – commitments which look increasingly ill-considered.

Facebook pounces on Instagram

With an impending IPO that is pencilled to raise about $5 billion and value the company at close to $100 billion, Facebook can certainly afford the $1 billion in cash and stock that it has offered Instagram – the start-up behind the popular and fast growing photo-sharing application – in a takeover made public by Facebook founder and chief executive Mark Zuckerberg on Facebook yesterday.

The deal is by some distance the largest yet by the social networking giant. It is novel too in that Zuckerberg says the intention is build and grow Instgram independently. To date, Facebook’s acquisitions have, in dollar terms, been fairly small in scale. Equally, in MA terms, it has been known more for pursuing talent than product.

Zuckerberg appears to have been swayed by the fact that photo-sharing is one of the most popular pursuits of the 845 million active monthly users on Facebook and also, possibly, by the success of Instagram’s arrival on Android and its recent fundraising, two events that could be seen as signalling the emergence of a mobile social netowrking rival.

For all its stellar growth – Instagram has close to 30 million registered users – it remains to be seen whether the company can deliver on the revenue side in the longer term or whether it is simply a convenient, fashionable and soon to be surpassed tool for the digital generation.

Only last week, the company is understood to have closed a fundraising round that raised $50 million and valued to entire business at $500 million.

Facebook may have graduated to the big time in terms of acquisitions; the question is whether it has paid over the odds in doing so. IPO investors will watch with interest.

TODAY

The International Monetary Fund publishes its spring 2012 World Economic Outlook.

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