CMC Markets Interview with David Jones

CMC's Peter Cruddas - The rags-to-riches rise of a likeable billionaire

CMC Markets Peter Cruddas

by Tony. Wong, Business

It wasn't an easy decision when Peter Cruddas decided to take his London-based financial services company into the uncertain world of Internet trading.

At a heated meeting in 1996, two of his three directors told him to abandon the foolhardy project, which had already cost his company more than a million dollars in development costs.

"I felt isolated and on my own, but I really believed in it and I went ahead without the support of my fellow directors and most of my employees because they thought it would threaten their jobs," says the U.K.-born Cruddas. It was a life-changing decision.

His idea has been so successful that, in April, the Sunday Times of London ranked Cruddas as the richest man in what is called "The City" - London's financial district - with a net worth of more than a billion pounds (about $2.12 billion Canadian).

Lord Rothschild was in second place.

And Cruddas, 53, looks the part. Dressed in a dark navy blue pin-striped Brioni custom-made suit and a Louis Vuitton tie, he looks every bit the CEO. He also lives the lifestyle, with five homes, including a mansion in Monaco, and two Bentleys and a Porsche in the driveway. On his last shopping trip, he bought 17 pairs of shoes at the same store, so he could put identical shoes in each of his five homes. The toys are the spoils of a certain stubbornness, he says, of never giving up on his vision.

"It was a risk and an expensive challenge, but it paid off, and those people aren't working for me anymore," says Cruddas, an imposing, athletic man who bears a resemblance to British tough-guy actor Jason Statham.

Despite the bling, Cruddas seems completely without arrogance. Self effacing and polite, he is as likable as someone with a billion dollars can be. He knows that he has become the brand for his company so he subjects himself to interviews, but he's the type who would much rather be playing golf or soccer.

"I'm still waiting for Arsenal (football team) to call," he says.

Using leverage - the basic concept behind Peter Cruddas' company, CMC Markets - definitely isn't for the unsophisticated investor, experts warn.

"My concern would be if this is appropriate for the average investor, or even some sophisticated investors," said Eric Kirzner, a University of Toronto finance professor and an expert on investment finance. "Using this kind of high leverage can encourage behaviour that isn't the best way to build value in the long run. This certainly isn't the route the average investor should go."

Even the professionals get it wrong. The Bank of Montreal earlier this year reported a $680 million loss - the largest reported in Canadian history - while using derivative trading in commodities.

And studies of arbitrage trading show that, historically, more than 90 per cent of speculators lose money in fast-moving markets such as commodities, says Kirzner.

CMC says it only allows "accredited investors" to trade. It also places a prominent warning on its website: "Do not invest in derivatives with money you cannot afford to lose. An investment in derivatives carries a high degree of risk ..."

Today, Cruddas has more than 600 employees in 12 countries and he is using Toronto as his North American head office for online futures and foreign exchange broker CMC Markets.

"We didn't just turn up here because we think Canada is a nice place to ski," says Cruddas, over a catered lunch in his Toronto office. "I really think Canada is the most exciting country that I visit on my travels and there is also a willingness here to embrace new products and to develop financial markets."

After buying an existing Canadian company, Shorcan Index, in 2005, with a staff of five, CMC has expanded to Vancouver and now has a staff of 31 and is looking at expanding further.

Cruddas says the Toronto branch was profitable in its first year: "We covered all our start-up and development costs" and had a net profit in the millions.

About 80 per cent of all new business growth is outside the United Kingdom, said Cruddas, and he sees that trend growing. "These products are growing exponentially around the world."

This summer he outlined plans in London for an initial public offering of his company that would net him an additional $849 million by cashing in a portion of his holdings in the private company of which he owns 96 per cent. Then he changed plans. "There's no rush. We have no debt, we're cash rich and we have $200 million (U.S.) in the bank and no outside shareholders."

Cruddas' story is the quintessential rags to riches tale of entrepreneurship that will likely be studied in more than one business school.

The son of a hard-drinking porter at a London meat market and a mother who worked as an office cleaner, Cruddas left home at the age of 15 to find work.

"The only reason I got into banking was because I learned to type when I was 15 working at Western Union. In the '70s most deals were done on a Telex machine, so I got myself a job as an operator at a bank and eventually learned to trade," said Cruddas.

In 1989, at the age of 35, Cruddas famously started his own company with a 10,000 pound investment.

"I was working in The City and I was up against a lot of bright people and I had no qualifications, but when I looked around I knew that I wanted to have something to show for it at the end of the day," said Cruddas. "I could never understand why people were working in The City and earning really good money and drinking and gambling and staying out late and having nothing to show for it."

Cruddas' idea was to offer retail investors a place to trade just about anything, including shares, commodities, currencies, derivatives.

"It's an easy way to trade, all on one platform," he says. The technology, which he says eventually cost 100 million pounds to develop also offers "contract for difference" products, something that only big institutions used to dabble in.

"Contract for difference (CFD) has been around a long time but we brought this institutional service to a retail client," says Cruddas. "You're buying and selling shares basically; it's just another mechanism to trade with."

CFDs essentially mirror the performance of a share, index or commodity without having to physically own them. They are traded on margin, (1 per cent for indices and 5 per cent for shares) and the profit or loss is determined by the buying and selling price.

The commission fee on share trading at CMC is calculated at 0.1 per cent of the value of the share and ranges from $7.50 to $40, which can be higher than some online trading brokerages. For example, the largest Canadian online brokerage, TD Waterhouse, has flat fees as low as $9.99 per trade as long as the client has at least $100,000 in assets.

Cruddas, says despite the pressure of running a global company, he makes sure he gets eight hours sleep - "I need my sleep, otherwise I wouldn't be able to do anything" - and plays golf a few times a week. His two brothers, including his twin, still drive black cabs in London. "They're pretty proud," he adds. "They've never asked me for money, although I would gladly give it. But they're pretty independent."

Instead, he has given generously to charities, including an announcement last month that he will donate 100 million pounds to various worthy causes through a new foundation.

Living in Monaco and jetting around the world, Cruddas wonders how high-profile billionaires such as Donald Trump and Richard Branson manage their time.

"I don't know how (they) do it. They're always on the telly. When do they run the company?" He prefers to trust his managers. "If anything, I probably over delegate. I need to have a life too."

It's a posh life indeed. And made all the more luxe because Cruddas refused to undervalue his company.

In 2000, a bank offered him 50 million pounds for CMC. He turned it down.

"My wife thought I was insane," he said. "But I thought I could do better. And I guess I did."